.»....4,».,...wUinMfiltMffli) 


THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


This  book  is  DUE  or'   t^e  last  date  stamped  "--low 


SOUTHERN  BRANCH, 

UNIVERSITY  OF  CALIFORNIA, 

LIBRARY, 
ILOS  ANGELES,  CALIF. 


SELECTIONS    AND    DOCUMENTS 
IN    ECONOMICS 


EDITED    BY 

WILLIAM    Z.  RIPLEY,  Ph.D. 

Professor  of  Economics,  Harvard  Univeksity 


Si:i.ia  TIONS  AM)   !)()(.  I'M I'.NTS 
IN   IXONOMICS 

IKl'SrS,  POOLS  .-iND   COIil'OR^TlOh'S 
{Rft'iseJ  Edition) 

By  William   /.    Ripli-y,    I'll. I).,   Professor  of 
Economics,  Harv.ird  I'liivcrsity 

m.-lDK   UNIONISM  yIM)  LABOR 
I'ROBLKMS 

By  John  R.  Commons,  Professor  of  Political 
Economy,  University  of  Wisconsin 

SOCIOLOGT  AND  SOCIAL  PROGRESS 

By  Thomas  N.  Carver,   Ph.D.,  Professor  of 
Economics,  Harvard  University 

SELECTED  READINGS  IN  PUBLIC 
FINANCE 

By  Charles  J.    Bullock,    Ph.D.,   Professor  of 
Economics,  Harvard  University 

RAILWAY  PROBLEMS  {Rei-iseJ  Edition) 

By  William    Z.   Ripley,   Ph.D.,   Professor  of 
Economics,  Harvard  University 

SELECTED  READINGS  IN  ECONOMICS 
By  Charles  J.    Bullock,    Ph.D.,    Professor  of 
Economics,  Harvard  University 

ECONOMIC  HISTORY  OF  THE  UNITED 
STATES. 

By  Guy  Stevens  Callender,  Professor  of  Political 
Economy,  Yale  University 

SELECTED  READINGS  IN  RURAL 
ECONOMICS 

By  Thomas   N.  Carver,    Ph.D.,   Professor  of 
Economics,  Harvard   University 


RAILWAY   PROBLEMS 


EDITED,  WITH  AN  INTRODUCTION 
BY 

WILLIAM  Z.  RIPLEY,  Ph.D. 

ROPES   PROFESSOR   OF  ECONOMICS,  HARVARD    UNIVERSITY 


REVISED  EDITION 


46791 

GINN  AND  COMPANY 

BOSTON     •     NEW    YORK     •     CHICAGO     •     LONDON 
ATLANTA      •     DALLAS     •     COLUMBUS     •     SAN    FKANCISCO 


CofYRUillT,   1907,    1913 

By  WILLIAM  Z.  RIPLEY 


ALL    RIGHTS    RESERVED 


716.7 


XEht   9tl)enxum    Sress 

(.INN   AND  CUMI'ANY  •  I'K(J- 
PRIl-TOKS  •  BOSTON  •  U.S.A. 


/  9/  ^ 
PEEFACE  TO  THE  SECOND  EDITION 

There  are  two  substantial  reasons  for  recasting  this  collection 
of  reprints  originally  made  up  in  1907.  The  first  is  that  the 
rapid  course  of  events,  legislative  and  economic,  in  the  United 
States,  especially  in  the  field  of  transportation,  has  rendered  the 
old  collection  obsolete  —  the  later  developments  having  since 
been  described  either  officially  in  documents  or  else  in  the  files 
of  the  economic  journals.  The  second,  and  by  no  means  less 
important  reason  to  me,  as  an  instructor  in  the  subject  forced 
constantly  to  face  the  problem  of  providing  solid  reading  matter 
for  large  classes,  is  the  completion  of  a  systematic  treatise  upon 
the  subject  with  which  these  selections  may  be  closely  correlated. 
Certam  chapters  of  my  own  in  the  first  edition,  having  been 
revised  and  brought  up  to  date,  are  now  transferred  to  my 
Railroads :  Rates  and  Regulation  or  will  appear  in  the  second 
volume,  Railroads:  Finance  and  Organization.  Others,  like  Taus- 
sig's classic  on  the  theory  of  rates,  have  been  so  completely 
incorporated  in  the  text  of  the  former  of  these  volumes,  with 
such  amendment  as  the  progress  of  economic  science  permits,  as 
to  render  their  separate  appearance  unnecessary.  And  certain 
other  chapters  on  legislation  then  incomplete,  are  now,  m  my 
judgment,  preferably  described  in  a  more  extended  account  of 
such  matters  in  the  above-named  systematic  treatises. 

In  place  of  these  omissions,  a  number  of  substantial  additions 

have  been  made.    The  admirable  account  of  early  conditions  in 

Pearson's    American   Railroad   Ruilder  is  too  R'ood  to  be  lost 

on  the  shelves  of  general  biography ;  yet  it  is  impracticable  on 

"^    grounds  both  of  time  and  expense  to  place  the  entire  volume 

Q^    in  the  hands  of  each  student.    A  number  of  significant  recent 

opinions  of  the  Interstate  Commerce  Commission  have  been  added, 

«^    because  of  the  light  they  throw  upon  the  radically  changed  eeo- 

^-J=^nomic  and  legal  conditions  since  1905.    The  admirable  descrip- 

0^  tion  by  Theodore  Brent  of  the  complexities  of  railroad  rate  making 

and  regulation,  prepared  for  the  late  Robert  Matlier,  presid(;nt 

of  the  Rock  Island  system,  affords  an  illustration  of  the  manner 


vi  IMJKIACI'.    I'o   TIIK   SIICOM)    IIDITION 

ill  which  rDiiipi't  it  it)M  L:f»'iu'r;ili/.i's  ahiiost  ;it  (iiicc  any  set  of  local 
I'oiiililioiis.  Ill  I'ttiiiii'it  ion  w  itii  tiu'  [)ro[u'r  adjiistiiiciil  ol  relations 
Ik'twiH-n  the  states  and  the  l'\'(lcral  crov(.iiiiiU'nt,  now  in  pro(3css 
of  sottU'inciit  hy  the  Sn[)ii'iiie  Court,  this  iliaptcr  is  particularly 
illumiiiatinLj. 

lu'cciit  ici^al  (Icvclopiiicnts  arc  also  strikingly  descrilu'd  in 
soveral  new  chapters  adtlcd  to  this  edition.  The  status  of  the 
carriers  niicU'r  the  Shcnnan  Anti- Trust  Act  would  seem  to  have 
bet'ii  pretty  well  delined  in  the  coursi'  of  the  exti'iided  proeeed- 
inj^s  dissolviiiLT  tlu'  rnion-Sonthein  I'acilic  nicrt^er.  A  fit  sequel 
to  the  Nt»rthcrn  Securities  (U'cision,  already  described  in  the  first 
edition,  is  thus  had.  A  second  subjeet,  yet  iu  llux  in  the  courts, 
is  the  detennination  of  reasonable  rates.  The  excellent  review  of 
judicial  lindinys  by  Mr.  Justice  Swayzc  of  the  court  of  last  resort 
iu  New  .lersey  covers  this  topic.  And,  finally,  the  most  perplexing 
and  interrelated  subjects  of  physical  valuation,  reasonable  rates 
and  confiict  of  state  and  Federal  authority  are  authoritatively 
treated  iu  the  recent  Supreme  Court  Minnesota  rate  decision. 

An  effort  has  been  made  to  tie  in  the  illustrative  material  in 
this  volume  with  my  systematic  treatise  on  the  subject  above 
mentioned.  For  it  is  believed  that  an  exhaiistive  examination  of 
a  well-chosen  set  of  typical  examples  —  following,  in  short,  the 
case  system  of  the  law  schools  —  affords  excellent  mental  train- 
ing to  the  student.  For  this  purpose,  the  cases  may  preferably 
be  read  before  studymg  the  treatise.  Then  the  latter  will  assist 
in  elucidating  the  difhcult  points  and  providing  the  proper  his- 
torical setting.  For  the  mature  student  of  the  subject,  this 
order  of  reading  may  well  be  reversed.  The  bird's-eye  view 
and  general  discussion  may  profitably  be  followed  by  a  careful 
and  minute  analysis  of  particular  incidents.  Only  thus  may  the 
great  intricacy  and  the  extremely  delicate  adjustment  of  com- 
mercial affairs  in  practice  be  duly  appreciated.  The  detailed  ac- 
count of  typical  cases  is  one  of  the  most  certain  correctives  for 
the  a  priori  philosopher  and  the  zealous  innovator.  These  several 
services  to  students  and  men  of  affairs,  it  is  hoped,  will  be  ren- 
dered by  an  extended  set  of  cross  references  in  all  of  the  volumes 
above  mentioned. 

WILLIAM  Z.  RIPLEY 


PREFACE   TO  THE   FIRST  EDITION 

This  collection  of  reprints,  like  its  predecessor.  Trusts,  Pools, 
and  Corporations,  is  directed  to  the  accomplishment  of  two  pur- 
poses :  not  alone  to  render  more  easily  accessible  to  the  inter- 
ested public,  valuable  technical  material  upon  a  question  of 
paramount  interest  and  importance  at  the  present  time,  but 
also  to  facilitate  the  work  of  the  college  instructor  in  the  eco- 
nomics of  transportation.  The  worst  evil  of  modern  academic 
life,  particularly  under  the  elective  system,  is  that  tlie  student 
may  so  seldom  be  called  upon  to  think  for  himself ;  —  not  merely 
to  "  cram  "  and  memorize,  to  absorb  information  predigested  by 
an  instructor,  but  rather  to  actively  use  his  reasoning  powers 
in  effecting  recombinations  of  ideas.  Mere  passive  contact  for 
a  brief  period  of  life  with  cultivating  influences  and  high  ideals, 
as  exemplified  in  books,  general  environment,  and,  it  is  to  be 
hoped,  instructors  of  the  right  sort,  tends  to  produce  the  dilet- 
tante, unless  at  the  same  time  the  mind  is  constantly  invigorated 
by  action.  This  is  especially  true  of  the  economic  and  social 
sciences.  To  provide  material,  preferably  of  a  debatable  sort, 
which  may  be  worked  over  under  discussion  in  the  class  room, 
instead  of  being  merely  committed  to  memory,  constitutes  the 
pedagogical  aim  of  tliis  book.  Some  of  the  extracts,  especially 
the  historical  ones,  are  of  course  not  susceptible  of  such  treat- 
ment. They  are  merely  reference  readings  for  convenient  use. 
But  the  others,  notably  the  decisions  of  the  Interstate  Com- 
merce Commission,  usually  provide  debatable  matter  of  an 
admirable  sort.  This  is  peculiarly  true  of  cases  or  decisions 
with  a  dissenting  minority  opinion.  Another  advantage  which 
many  of  these  economic  cases  possess,  over  propositions  in 
mathematics,  logic,  or  even  law,  as  material  for  training  the 
intelligence,  is  that  they  are  always  charged  with  human,  and 
often  with  great  public,  interest ;  and  that  they  incidentally 
involve  an  acquaintance  with  the  undei-lying  business  condi- 
tions and  trade  relations  of  the  country  at  large. 


viii  PKKFACK   To    TIIK    I'lKST    KIMIloN 

Oiu'  point  in  coMiuHtiDM  with  tlu'  ri'prints  t'niiii  derisioiis  of 
till-  IiUi'i-state  ('oinnuMiT  ('oiiiiiiission  is  peuuliarly  deserving  of 
note.  IMiis  volume  is  a  collection  of  eases  in  eeononiies  and  not 
in  law.  While  legal  propositions  are  sometimes  necessarily  in- 
volved, they  are  siihordinate  for  our  i)Uiposes  to  questions  of 
eeonomie  fact.  Our  interest,  for  example,  in  the  Import  Rate 
decisions  of  the  Supreme  Court  aiises  primarily  from  the  fact 
that  in  the  settli'ineiit  of  a  dillicult  point  at  law  economic  rela- 
tionships and  conditions  are  revealed.  A  certain  practice  may 
be  illegal,  and  yet  sound  economically,  or  the  reverse.  This  ex- 
plains why  many  of  these  reprints  have  been  entirely  stripped 
of  legal  material  in  the  process  of  editorial  condensation.  The 
case  is  thereby  not  only  much  abridged  but  at  the  same  time 
simplified  for  the  use  of  economic  students. 

The  book  is  not  intended  to  be  used  alone  in  the  conduct  of 
courses,  but  in  connection  \\ith  some  standard  treatise  upon  the 
economics  of  transportation,  such  as  Hadley\s,  Johnson's,  or  the 
editor's  discussion  in  the  Final  Report  of  the  United  States 
Industrial  Commission  of  lilOO  (pp.  259-485). 

For  permission  to  reprint  the  selections  from  books  and  tech- 
nical journals,  acknowledgment  is  due  to  the  editors  of  the 
Quarterly  Journal  of  Economics,  the  Political  Science  Quarterly, 
and  ihQ  Journal  of  Political  Economy  ;  and  to  Messrs.  McClure, 
Phillips  &  Co.  and  the  University  of  Chicago  Press.  Honorable 
Martin  A.  Knapp,  the  distinguished  chairman  of  the  Interstate 
Commerce  Commission,  has  in  this,  as  in  all  other  enterprises 
tending  to  a  further  elucidation  of  the  difficult  problems  of 
railway  economics,  rendered  most  valuable  aid.  The  various 
authors  whose  contributions  are  herein  reprinted  have  given, 
in  all  instances,  the  most  cordial  j)ermission.  I  wish,  however, 
to  acknowledge  my  peculiar  indebtedness  to  the  Honorable 
Charles  Francis  Adams,  not  alone  for  his  willingness  to  per- 
mit an  abbreviated  reprint  of  his  Chapters  of  Erie,  now  out 
of  print,  to  be  made,  but  for  his  friendly  aid  in  the  direct  accom- 
plishment of  that  purpose.  May  the  volume,  headed  by  his  early 
contribution  to  the  subject,  help  to  further  the  public-spirited 
purpose  which  inspired  his  work  a  generation  ago ! 

WILLIAM   Z.  RIPLEY 


CONTENTS 


Introduction.    (Analysis  of  chapters.)    By  AVilliam  Z.  Ripley    .     , 

CHAPTER 

I.    A    Chaptkr    of    Erie.     (Early   speculative    and   financial 
scandals.)    By  Hon.  Charles  Francis  Adams 

II.    Early  American  Conditions.    By  Henry  G.  Pearson    . 

HI.    Standard  Oil  Rebates.    By  Ida  ]\I.  Tarhell     .... 

IV.    The   Building  and   Cost  of  -the  Union  Pacific.    (Con 
struction  companies.)    By  Henry  Kirke  AVhite  . 

V.    The     Southern     Railway    &    Steamship    Association 
(A  typical  pool.)    By  Henry  Hudson 

VI.   Unreasonable  Rates  : 

The  Cincinnati  Freight  Bureau  Case  .... 
The  Maximum  Freight  Rate  Decision,  1897  .  . 
The  Commerce  Court  Decision,  1911 

VII.    Commercial  Competition:  Rates  on  Salt     .... 


PAGE 

xi 


1 

62 
92 

lUS 

128 

1.53 

187 
198 


AT^II.    Relative  Rates  :  The  Eau  Claire,  Wls.,  Lumber  Case 

IX.    Unreasonable   Rates  :    The    Savannah    Naval   Stores 
Case 


X.    Relative  Rates:  The  Chattanooga  Case 


216 
231 

252 

266 


XI.    The   Long   and   Short   Haul  Clause:    The   St.   Cloud, 
MiNN.,  Case 


297 


XII.    The    Long   and    Short   Haul   Clause:    The    Savannah 

Fep.tilizer  Case 311 

XIII.  Joint   Thiiougii    Rates    and    Pi;orating  :    Jobbing   Com- 

petition        337 

XIV.  The  Southern  Basin(;  Point  System  : 

The  Troy,  Ala.,  Case 357 

The  Alabama  Midland  Decision 378 

ix 


X  ("ONTKN'rs 

»M  Vl'TKU  I'AdK 

W.     Till    Sol   1111  i;n    llvsiNi;    I'tdNi    S^s^l^l:    Tin     |)a\vs(in, 

(;\..  Cask. ;;S7 

W'l.    Tin:    SoriniKN    IJvii     S\sii\i:     I'm     I  >  \n\  i  ii.i:,    \'.\., 

Tasi. Kl-J 

X\I1.     Ti;  \NS(  UN  riNi  N  1  Ai.   I'm  II. Ill    Uaiks: 

Tin.   Si.    I,i>i  is    I'.i  sinkss   Mi.n's   Lkacik  Cask     .     .     42!) 
'I'liK    Xk\  \I'A    Kaii.I!i)A1>   Commission   Cask  .  I(!l 

Will.      IlxKoltl     ANI>     Do.MI.SIlC     IJaTKS.     (  A  t  lilllt  ic  illll  1  (  i  II  If  COlll- 

IH'titiuii.) 1S7 

XIX.    I'liiKJii  r  Ci..\ss;ki(A  1  ION  :    Tiii';    H.vriKns'   Funs  Cask      522 

XX.     Ili>\\    riiK  Siwii.s  M.\KK   In  iKi.'s  lATK   Kaiks.    By  Ilobcrt 

MutluT 580 

XXI.     Tin:    X'oi;  iiiKitN   Skciimtiks   Company.    (Ivailioatl  coji- 

solidation.)    By  Halthasar  II.  JNleyer 553 

XXII.  The  Union  Pacific-Southkhn  Pacific  Mkugek  Dis- 
solution. (Railroads  uiuk'r  the  Sherman  Anti-Trust 
Act.)    By  Stuart  Daggett 567 

XXTIT.    IIkasoxahi.k  Ratks.    (Judicial  (lotcriinnation.)   By  Alton 

I).  Adains 597 

XXIV.    TiiK  DocTitiNK  OK  .Ii  Dici.M.  IvKviKW.    By  1 1 .  S.  Siuallcy     ()19 

XXV.    TiiK  ^IiNNKsoTA  Rate  Case 642 

XX\'I.  TiiK  Rkctlation  of  Railway  Rates  itnder  the 
FuiKTEENTii  Amendment.  By  Hon.  Francis  J. 
Swayze 716 

XXVTI.    Tin:    English    Railway   and   Canal   Commission    of 

1.SS8.    By  S.  J.  McLean 745 

XXVIII.    Haii.way  Regulation   IN  Fhance.    By  W.  II.  Buckler     795 

XXIX.    Raii.i:o.\i>  Ownekshii'  in  (iEUMANY.    By  Balthasar  II. 

Meyer 803 

INDEX 827 


INTKODUCTION 

The  first  impression  conveyed  by  our  historical  selections  is 
that  they  unduly  emphasize  certain  infamous  events  in  the 
development  of  the  American  transportation  system.  There  is 
surely  nothing  more  discreditable  in  the  economic  history  of 
the  United  States  than  the  defrauding  of  the  government  and 
of  innocent  investors  by  the  use  of  development  and  construc- 
tion companies,  of  which  the  Credit  Mobilier  was  a  leading 
example,  by  such  men  as  Stanford,  Durant,  and  Crocker ;  the 
wrecking  of  the  Erie  Railroad  by  Jay  Gould  and  Jim  Fisk  ;  and 
the  utterly  unscrupulous  manipulation  of  railroad  rates  by  the 
Rockefellers  and  their  associates,  in  order  to  destroy  competition 
with  the  Standard  Oil  Company.  Happily  such  occurrences 
are  exceptional  in  the  economic  life  of  a  nation.  Nevertheless 
their  description  is  essential  to  an  understanding  of  the  whole, 
just  as  pathological  research  is  needed  for  a  true  comprehension 
of  the  normal  and  healthy  physiological  processes.  It  would 
have  been  far  pleasanter  to  record  in  detail  the  course  of 
events  by  which  the  wonderful  achievement  of  opening  up  a 
great  continent  to  settlement  was  accomplished.  Practically 
this  is  impossible  within  reasonable  limits  of  space.  Not  the 
prosaic  and  normal,  but  the  spectacular,  phases  of  our  economic 
life  have  been  as  yet  adequately  described.  The  most  that  can 
be  claimed  for  the  selection  of  certain  of  these  events  is  that, 
while  perhaps  extreme  examples,  they  are  significant  as  indi- 
cating possibilities  under  the  then  prevailing  state  of  public 
opinion  and  law. 

Another  less  practical,  and  in  fact  more  important,  reason  for 
throwing  these  infamous  events  into  high  light,  lies  in  their 
instructive  character  as  illustrating  the  evils  generally  attend- 
ant upon  a  pioneer  stage  of  development,  together  with  the 
abuses  which  naturally  arise  under  conditions  of  absolutely  free 


xii  INTRODUCTION 

coiiiju'tition.  Tlio  i^n^it  ;u1v;uuh'  in  })ul)lic  morality  which  to-day 
refuses  to  tolerate  such  abuses  becomes  at  once  apparent.  In 
the  ease  of  tlie  chapters  from  the  liistory  of  the  Erie  Railroad 
and  its  evil  spirit,  .lay  (lould,  the  corruption  of  the  state  judi- 
ciary was  perhaps  the  most  deplorable  feature  of  the  affair, 
liut  the  necessity  of  strict  financial  accountability  of  the  direct- 
ore  of  great  public-service  corporations,  both  to  the  government 
and  to  the  stockholders,  is  made  evident  with  equal  clearness. 
Public  sentiment  —  more  sensitive  to  financial  delinquencies 
tixlav  than  it  was  a  generation  ago  —  has  compelled  the  crea- 
tion of  governmental  agencies  for  securing  publicity.  By  such 
means  scandalous  abuses  of  trust  are  more  easily  detected 
and  punished.  Too  often  in  the  past,  well-merited  punishment 
has  not  taken  place  through  the  agency  of  the  duly  constituted 
legal  authorities.  The  evil  doers  have  received  their  just  de- 
serts only  through  condemnation  by  contemporary  public  opin- 
ion, perpetuated  afterward  by  historical  record.  To  keep  alive 
some  of  these  old  scandals  cannot  fail  to  impress  the  fact  that 
the  evil  which  men  do  lives  after  them.  It  is  not  to  be  con- 
doned, either  by  purely  private  morality,  or,  by  material  success 
achieved  during  life,  followed  by  large  benefactions  after  death. 
The  chapter  upon  "  Standard  Oil  Rebates  "  has  had  a  more 
direct  bearing  upon  contemporary  affairs.  The  undoubtedly  typ- 
ical events  therein  described  were  a  powerful  factor  in  rousing 
public  sentiment  in  favor  of  the  original  Act  to  Regulate  Com- 
merce of  1887.  Their  fearless  republication,  fully  authenticated 
by  documentary  evidence,  in  the  admirable  History  of  the 
Standard  Oil  Company  by  Miss  Tarbell,  —  confirmed  as  it  was 
in  its  main  conclusions  by  the  masterly  "  Report  upon  the  Trans- 
portation of  Petroleum,"  by  the  United  States  Commissioner  of 
Corporations,^  —  was  an  equally  powerful  influence  in  crystal- 
lizing public  sentiment  in  favor  of  the  recently  enacted  Hej)- 
burn  Bill  of  1900.'-^    Public  opinion  to-day  is  unanimous  in  the 

^  Ripley's  Railroads  :  Rates  and  Regidatioii,  chap,  vi,  on  "Personal  Discrimi- 
nation," gives  the  necessary  historical  settinic. 

^  Idem,  chaps  xiv-xvii,  describes  and  analyzes  this  legislation. 


INTRODUCTION  xiii 

demand  that  railways  as  common  carriers,  enjoying  inestimably 
valuable  privileges  by  authority  of  the  government,  shall  accord 
substantially  equal  treatment  to  all  shippers  alike,  be  they  great 
or  small. 

Rebates  and  discHminations  are  not,  however,  matters  of 
historical  but  of  very  present  importance.  As  late  as  1900, 
according  to  the  opinion  of  experts,  personal  favoritism  had 
become  a  thing  of  the  past.  This  was  in  large  measure  probably 
true  so  far  as  the  ordinary  private  businesses  of  the  country 
were  concerned.  But  a  new  and  highly  disturbing  factor  was 
the  sudden  rise  of  great  industrial  combinations,  incident  upon 
the  phenomenal  prosperity  since  1897.  Many  of  these  trusts 
were  floated  upon  glowing  prophecies  of  economies  in  produc- 
tion. Prominent  among  these  was  to  be  a  saving  in  freights 
through  division  of  the  market  into  districts,  each  supplied  by 
the  most  conveniently  located  plant.  The  results  have  shown 
in  too  many  cases  that  the  real  saving  was  not  effected  in  this 
legitimate  way  at  all.  But  their  size  and  power  weie  used  as  a 
club  to  force  the  carriers  to  grant  secret  favors  in  rates  which 
were  denied  to  the  independent  producers.  The  exposures  of 
personal  discrimination  on  a  large  scale  started  in  Wisconsin  in 
1903,  as  a  corollar\'  to  the  investigation  concerning  railroad  tax- 
ation under  Governor  La  Follette.  The  so-called  Elkins  Bill, 
amending  the  Interstate  Commerce  Act  in  the'  interest  of  rail- 
road revenues  by  greatly  increasing  the  penalties  for  rebating, 
was  enacted  in  the  same  year.  Various  investigations  by  the 
Interstate  Commerce  Commission  since  1904  have  uncovered 
intricate  methods  for  evading  even  this  more  drastic  prohibition. 
Prominent  among  these  is  the  use  of  terminal  railways  owned 
by  the  shipper,  which  receive  back  an  undue  proportion  of  the 
through  rate  for  a  merely  nominal  service.  The  International 
Salt  Company,  the  United  States  Steel  Corporation,  and  the  In- 
ternational Harvester  Company,  for  example,  have  been  detected 
in  the  utilization  of  this  device.  Another  method,  quite  common, 
especially  in  securing  rebates  on  grain  and  flour  for  the  great 
Minneapolis  millers,  is  the  "midnight  tariff," —  a  low  tariff  pub- 
licly filed  but  made  effective  only  for  one  day,  for  the  use  of 


xiv  iN'nionrcrioN 

shippers  warned  and  prepared  in  advani-e.  Discrimination  in  the 
use  i^f  ci»al  i-ars,  always  i>peratin<jf  of  course  in  favor  of  the  hirge 
shipper,  was  discovered  on  the  Pennsylvania  system  even  more 
recently.  Vov  yeai-s  the  use  of  private-car  lines  by  the  Chicago 
packei-s,  known  as  the  Beef  Trust,  to  stitlfc  all  effective  compe- 
tition from  indei)endents,  has  been  well  known;  but  it  was  not 
fully  disclosed  until  the  general  agitation  for  lailroad  reform  was 
taken  up  by  President  Roosevelt.  And  all  the  time,  as  it  now 
appears,  the  plain  old-fashioned  mode  of  direct  repayment  of  a 
part  of  the  published  tariff  rate  has  continued  in  secret.  The 
American  Sugar  Kelining  Company  (in  IDOG)  and  the  Colorado 
Fuel  vV  Iron  Company  (in  li>05)  have  already  been  convicted  of 
this  offense  in  the  Federal  Courts.  The  climax  is  now  capped  by 
the  HKvsterly  revelations  of  the  United  States  Commissioner  of 
Corporations,  in  his  Report  upon  the  Transportation  of  Petro- 
leum of  1906.  That  hoary  old  offender,  the  Standard  Oil  Com- 
pany, is  now  on  trial  in  the  Federal  Courts,  having  been  shown 
by  an  investigation  of  the  books  of  the  railways  by  expert  account- 
ants, to  have  been  regularly  in  the  enjoyment  of  preferential 
rates  over  competitors  in  all  parts  of  the  country.  The  evidence 
upon  this  point,  taken  in  connection  with  the  public  professions 
of  those  charged  with  its  management,  is  one  of  the  most  extraor- 
dinary exposures  of  loose  business  morality  which  this  present 
generation  is  likely  to  wdtness.  This  revelation,  together  with 
that  of  the  Armstrong  Insurance  Committee  in  New  York,  is 
unfortunately  bound  to  furnish  powerful  ammunition  for  the  use 
of  political  demagogues,  in  the  furtherance  of  their  selfish  ends. 
For  the  dispassionate  student  of  public  affairs  the  argument  is 
greatly  strengthened  in  favor  of  an  extension  of  public  regula- 
tion both  of  railroads  and  trusts.  The  advantages  of  an  enforced 
and  ample  publicity  have  been  most  effectively  demonstrated  by 
this  rather  remarkable  series  of  events. 

Pooling^  or  agreements  between  carriers  for  obviating  compe- 
tition, was  commonly  practiced  prior  to  the  Interstate  Commerce 
Act  of  1887.  That  law  expressly  prohibited  it;  and  the  courts 
have  also  interpreted  the  Anti-Trust  Act  of  1890  as  applicable 


INTRODUCTION  xv 

to  railway  contracts  of  the  same  kind.  Moreover  the  progress 
of  railway  consolidation  since  1898  has  been  such,  especially  in 
the  southern  states,  that  the  necessity  for  pooling  agreements 
is  far  less  obvious  than  it  was  twenty  years  ago.  The  enactment 
of  Federal  legislation  for  the  prevention  of  rate  cutting  and 
secret  discrimination  insures  a  greater  measure  of  stability. 
Cut-throat  competition  like  that  of  earlier  days  has  become 
almost  impossible.  Competition  to-day  is  rather  of  service  and 
facilities  at  established  rates,  than  as  between  actual  rates  them- 
selves. Consequently  our  chapter  upon  the  Southern  Railway  & 
Steamship  Association,^  at  once  the  most  effective  and  endur- 
ing organization  of  its  kind,  is  now  seemingly  of  historic  inter- 
est alone.  Yet  a  cogent  reason  for  describing  such  a  railway 
pool  in  detail  nevertheless  exists,  and  derives  great  force  from 
the  nature  of  impending  problems  in  railway  operation.  ]\Iany 
competent  students,  other  than  railroad  men,  are  convinced  that 
the  present  prohibition  of  pooling  ought  to  be  repealed  now  that 
the  great  principle  of  public  supervision  and  control  of  rates  has 
been  reaffirmed  and  securely  established  by  the  Hepburn  Act 
of  1906. 

The  United  States  Industrial  Commission  of  1900  in  its 
final  report  included  an  elaborate  discussion  of  this  topic,  lead- 
ing to  the  conclusion  that  agreements  between  carriers,  subject 
of  course  to  approval  by  the  Interstate  Commerce  Commission, 
would  not  only  greatly  facilitate  railway  operation  but  also 
contribute  powerfully  to  stability  of  rates.  Since  drafting  this 
report,  I  have  been  able  to  investigate  the  subject  further,  with 
particular  reference  to  the  economic  wastes  incident  to  even 
normal  and  healthy  railway  competition.^  The  conviction  that 
the  most  certain  remedy  for  many  of  these  economic  wastes  in 
transportation  will  be  found  in  a  rehabilitation  of  pooling  under 
governmental  supervision,  has  been  greatly  strengthened  also 
by  a  somewhat  extended  personal  investigation  of  railway  prac- 
tice in  Europe.  In  the  British  Isles,  the  broad  princij)le  that 
railways  are  essentially  natural  monopolies,  and  should  both 
legally   and   administratively   be   treated   as   such,    has   always 

^  Vide,  p.  128,  infra.      -  liiplfy's  Ifailnjads:  Kates  and  llegulation,  chap.viii. 


xvi  IN  IKOhl  (   rioN 

oblai.UMl.  PooliuL;;  a^ri-i'iiu'iits  ixw  actually  cnfoivihli'  by  k'gal 
process.  This  I'ouirasts  slion^ly  willi  our  Anu'iican  practice, 
wlu'iv  \vi>  havi'  iii<lis(iiiiiiiiati'ly  sought  to  pcipctuate  ctjinpeli- 
tion  l>v  law,  hotli  for  railways  aucl  trusts,  regardless  of  their 
eeoMouiii-  (lilTeii'Hies.  We  have,  for  instance,  failed  to  recognize 
that  in  the  ease  of  eonunon  carriers,  as  distinguished  from  indus- 
trial eonibinations,  a  remedy  against  unreasonable  rates  far  more 
secure  than  i(ini[)elition,  namely  governmental  control,  may  be 
exercised.  Moreover  this  method  is  advantageous  because  it 
conduces  to  stability  of  rates,  never  possible  under  free  compe- 
tition, while  at  the  same  time  it  still  pei-mits  of  competition  for 
business,  not  by  cutting  of  rates,  but  under  established  rates 
through  extension  of  better  service  and  facilities.  The  necessity 
for  prohibition  of  pooling  in  the  United  States  has  largely  dis- 
ap[)eared,  now  that  the  great  i)rinciple  of  public  regulation  by 
the  Federal  government  is  definitely  reenacted  into  law. 

Observation  in  continental  Europe,  where  government  owner- 
ship of  railways  prevails,  strongly  impresses  one  with  the  eco- 
nomic advantages  of  entirely  unitied  systems  of  operation.  No 
devious  routing  of  traffic  is  allowed.  Certain  lines,  best  situated 
and  equipped  for  the  business,  are  designated  for  eacli  kind  of 
trallie,  and  concentration  on  them  follows  to  the  exclusion  of  the 
weak  lines,  —  that  is  to  say,  of  the  lines  which  are  weak  for 
that  particular  business.  No  roundabout  circuits  occur  because 
of  the  complete  absorption  of  all  lines  in  the  government 
system.  No  independent  roads  have  to  be  placated.  The  sole 
problem  is  to  cause  the  tonnage  to  be  most  directly  and  eco- 
nomically transported.  The  advantage  of  monopolistic  operation 
is  amply  demonstrated.  But  added  evidence  of  the  desirability 
of  eliminating  competition,  except  in  the  matter  of  service  and 
facilities,  is  found  in  the  fact  that  wherever  these  unified 
government  systems  come  in  contact  they  immediately  resort 
to  pooling  agreements  with  one  another.  Thus  the  Prussian 
system  is  party  to  a  number  of  pools  with  the  railways  of 
Austria,  Bavaria,  and  Baden.  The  emphasis  is  laid  upon  secur- 
ing the  most  direct  and  efficient  service  as  well  as  the  mainte- 
nance of  stable  rates. 


INTRODUCTION  xvli 

For  all  these  reasons  above  stated,  it  lias  seemed  desirable  to 
reproduce  a  picture  of  one  of  our  best  old-fashioned  pools  at 
work.  Had  such  an  organization  not  been  prohibited,  so  far  as 
rate  making  is  concerned,  by  the  Act  of  1887,  one  may  reason- 
ably doubt  whether  the  gigantic  consolidations  now  dominating 
the  southern  states  would  have  arisen.  This  particular  chapter 
is  reprinted,  therefore,  not  only  because  of  its  historical  impor- 
tance but  also  in  the  hope  that  some  day  the  railway  pool  under 
strict  governmental  supervision  and  control  may  be  legally 
restored  to  favor  as  an  agency  for  more  effective  service  and 
greater  stability  of  rates. 

Traffic  problems  may  be  roughly  classified  in  four  groups  : 
those  appertaining  to  the  reasonableness  of  rates  in  and  of 
themselves  without  reference  to  any  other  tariff ;  those  which 
spring  from  an  imputedly  unreasonable  relativity  between  rates 
for  different  and  competing  places  or  markets  ;  those  which 
concern  the  relation  between  rates  upon  different  commodities  ; 
and  finally  those  which  deal  with  differences  in  rates  for  the 
same  service  between  competing  shippers.  Of  these  four  groups 
the  last  one  concerning  personal  discrimination  has  already 
been  discussed.  The  third  group  is  mainly  concerned  with  the 
intricate  and  technical  problems  of  freight  classification,  com- 
modity rates,  and  car-load  tariffs.  Such  matters,  decided  for 
example  by  the  Interstate  Commerce.  Commission  in  a  number 
of  important  cases,^  are  usually  too  elaborate  for  reproduction 
here,  and  moreover  could  subserve  no  useful  purpose,  as  their 
decision  depends  rather  upon  mere  questions  of  fact  than  of 
public  policy.  One  simple  concrete  case  alone,  concerning  the 
classification  of  fur  hats,^  will  serve  to  indicate  the  principles 
involved,  and  their  importance  in  any  general  scheme  of  rate 
making.  The  problem  of  relative  rates  upon  grain  and  grain 
products,  discussed  in  the  Export  Rate  case,'^  incidentally 
involves  issues  of  the  same  sort  upon  a  large   scale,  as   well 

1  Notably,  the  New  York  Board  of  Trade  and  Transportation  Case,  Interstate 
Commerce  Commission  Reports,  Vol.  Ill,  pp.  473-511. 

2  P.  522,  infra.  «  Vide,  p.  487,  iyifra. 


x\iii  IN  li;(t|)l  (lloN 

:i>  ilu'  St.  Louis  r.u'illc  Cuast  johhers"  roiUioversy.'  r^liiniiuit- 
iiiL,'  personal  ilisi'iiiiiinatioii  and  classilication,  our  remaining 
seloftions  in  this  fu'lil  of  inquiry  arc  thus  narrowed  down  to 
two,  —  namely,  ahsolutely  reasonable  rates  and  relative  rates 
for  et)mi)elinLj  markets. 

The  inlwri'nf  irasonahlcni'ss  of  rdilroad  rates  is  a  question  less 
apt  to  arise  witli  reference  to  a  single  commodity  than  to  an 
entire  schedule  or  tarift".  It  is  a  matter  of  far  less  concern  to  an 
individual  merchant  or  group  of  traders  that  tlie  absolute  freight 
rale  is  liigh  than  that  it  (be  it  in  general  high  or  low)  is  higlier 
than  the  rate  enjoyed  by  a  competitor.  For  even  if  it  be 
unreasonably  higli,  so  long  as  it  applies  to  all  traders  in  the 
same  market,  the  surcharge  can  immediately  be  levied  upon  the 
consumer  by  all  dealers  alike  through  an  enhancement  of  prices. 
In  the  noted  Cincinnati  Freight  Bureau  case,^  the  IMiddle  West 
was  not  solicitous  for  the  welfare  of  the  consuming  pu})lic  in 
the  southeastern  states  when  it  complained  that  freight  rates 
from  western  centers  into  the  South  were  unduly  high.  The 
western  merchants  were  interested  in  a  reduction  because  their 
rates  were  in  fact  higher  than  those  enjoyed  by  the  Atlantic 
seaboard  cities  to  the  same  points.  Their  complaint  concerned 
itself  essentially  with  the  relativity  of  charges  from  different 
competing  centers  to  a  common  market.  The  complainant  as 
to  the  absolute  reasonableness  of  southern  freight  rates  should 
properly  be  the  general  consuming  public  in  the  region  in  ques- 
tion. In  a  similar  fashion  in  another  of  our  cases,^  Danville 
complains,  not  primarily  that  her  freight  rates  are  high,  but 
rather  that  they  are  higher  than  those  granted  to  Richmond, 
Norfolk,  and  Lynchburg.  The  burden  of  complaint  as  to  the 
absolute  unreasonableness  of  the  rates  in  question  should  prop- 
erly proceed,  not  from  the  organized  merchants  of  Danville 
but  from  her  general  consuming  population.  Nevertheless  such 
questions  as  concern  the  absolute  level  of  freight  rates  do  some- 
times arise,  as  in  the  notable  case  of  the  Chicago  Stock  Yards. 
In  this  instance  an  arbitrary  switching  charge  of  two  dollars 
per  car  was  imposed  by  the  railroads  in  1894,  applicable  to  all 

'  Vide,  p.  429,  infra.         2  yide^  p_  253,  infra.         3  yide,  p.  402,  iiifra. 


INTEODUCTION  xix 

shippers  alike.  Issue  was  raised  as  to  whether  such  an  extra 
charge  was  justified  by  the  circumstances  and  conditions  under 
which  this  particular  rate  was  imposed.^ 

Far  more  often,  however,  than  in  the  case  of  individual  or 
particular  charges,  for  the  reasons  above  outlined,  issues  of  fact 
concerning  the  absolute  reasonableness  of  rates  in  and  of  them- 
selves are  apt  to  be  raised  with  reference  to  entire  schedules  and 
tariffs.  The  Interstate  Commerce  Commission,  as  in  the  case  of 
the  freight-rate  increases  subsequent  to  1900,  was  called  upon 
to  act  in  the  general  interests  of  the  consuming  public.  Were 
these  general  increases  justified  by  the  widespread  rise  of  prices 
and  were  they  commensurate  with  the  enhancement  of  costs  of 
operation?  The  problem  in  such  cases  is  mainly  one  of  fact, 
to  be  discussed  and  decided  by  experts.  These  facts  vary  in 
their  significance  from  year  to  year.  Reproduction  of  such 
investigations  in  a  volume  of  this  sort  would  be  of  little  value. 
Of  course  the  future  development  of  the  Interstate  Commerce 
Commission  is  bound  to  bring  it  face  to  face  with  just  such 
broad  issues.  Matters  of  paramount  importance  will  be  involved. 
But,  like  matters  of  classification,  they  are  too  technical  for  our 
immediate  purpose. 

While  cases  suitable  for  reproduction  in  this  volume  rarely 
turn  entirely  upon  the  absolute  reasonableness  of  rates,  such  an 
issue  is  often  incidentally  involved,  as  for  instance  in  the  Cin- 
cinnati and  St.  Louis  cases  above  mentioned  and  in  those  of 
Chattanooga  ^  and  Savannah.^  Given  the  fact  that  the  relativity 
of  two  rates  is  unreasonable,  is  the  one  too  high  or  the  other 
too  low?  Either  contingency  might  give  rise  to  the  inequality 
called  in  question.  A  just  decision  as  to  relative  reasonableness 
must  therefore  reckon  with  the  problem  of  inherent  reasonable- 
ness. But  the  main  interest  of  such  issues  for  the  mere  student 
of  railway  economics  lies  less  in  the  bald  facts  as  stated,  which 
may  vary  from  time  to  time,  than  in  the  opposing  arguments 
and  principles  invoked,  which  are  in  their  essence  permanent. 

1  This  long-standing  controversy,  with  otliers  concerning  the  general  rates  on 
cattle,  seems  likely  to  be  made  the  occasion  for  a  first  test  of  the  new  Hepburn 
Act.  2  P.  200,  infra.  »  pp_  252  and  814,  infra. 


X\  IN  TKonrCTlON 

Alleged  rdixtirchi  utiriasonahle  nitcs  for  competing  markets 
constitute  the  basis  for  coiiiphiints  before  the  Interstate  Com- 
merce Commission  far  more  frequently  than  do  those  concern- 
ing the  al)si)lute  amount  of  the  rate  cliarged.  The  reasons  for 
this  have  been  set  fortJi  in  the  preceding  paragraphs.  And, 
common  as  such  complaints  have  been  in  the  past,  it  is  certain 
that  in  future,  with  the  ever-increasing  commercial  interrelation 
between  different  parts  of  the  United  States,  such  alleged  griev- 
ances will  claim  a  preponderating  share  of  the  attention  of  any- 
administrative  commission.  Veritable  puzzles  in  rate  adjustment 
constantly  arise,  which  bring  out  in  high  relief  the  economic 
peculiarities  of  railway,  as  distinct  from  ordinary  industrial, 
competition.  For  this  reason  a  large  number  of  the  cases  herein 
reprinted  deal  with  this  phase  of  the  subject. 

By  and  large,  these  cases  may  be  roughly  set  apart  into  two 
classes  corresponding  respectively  to  two  distinct  aspects  of  the 
problem  of  relative  adjustment  of  rates  for  competing  localities. 
Of  these  the  first  and  simplest  arises  as  between  two  competing 
markets  lying  upon  and  served  by  the  same  line  of  railroad. 
The  problem  is  to  adjust  with  relative  fairness  the  rates  to  near 
and  distant  points  on  the  same  line,  one  often  a  local  or  way 
station,  while  the  other  enjoys  the  benefit  of  low  competitive 
rates.  This  is  a  problem  as  old  as  railroading,  commonly  desig- 
nated as  the  long-and-short-haul  question.  The  second  class  of 
problems  is  at  once  more  recent  and  comprehensive  in  its  scope. 
It  concerns  the  relativity  of  rates  to  or  from  a  common  market 
from  various  points,  not  on  the  same  but  on  different  lines.  A 
decision  in  this  latter  case  amounts  practically  to  a  delimita- 
tion of  the  entire  area  of  the  market.  The  long-and-short-haul 
question  raises  issue  as  to  the  extent  of  a  market  by  one  dimen- 
sion alone,  while  this  second  phase  of  the  matter  touches  the 
circumscription  of  the  market  both  in  length  and  breadth,  —  and 
one  might  almost  add,  in  thickness  as  well.  Such  is  the  daily 
problem  of  the  professional  traffic  manager.  It  has  not  fre- 
quently been  presented  for  settlement  to  the  Interstate  Com- 
merce Commission,  but  is  certain  to  do  so  increasingly  often 
with  every  increment  of  regulative  power  conferred  by  Congress 


INTRODUCTION  xxi 

or  sanctioned  by  the  courts.  All  these  classes  of  problems  alike 
fundamentally  involve  the  principles  concerning  the  element  of 
distance  as  a  factor  in  the  carriage  of  goods.  Transportation  is 
in  essence  the  elimination  of  the  element  of  distance  from  mar- 
kets. The  most  important  and  puzzling  cases,  therefore,  natu- 
rally turn  upon  the  definition  of  the  due  importance  of  distance 
as  affecting  cost  of  service,  in  comparison  with  competition 
which  determines  the  value  of  service,  and  in  which  mere 
distance  plays  no  part.^ 

Our  cases  illustrative  of  the  loiig-and-sJiort-haul  question  spring 
mainly  from  Section  4  of  the  Act  to  Regulate  Commerce  of 
1887.  That  clause  of  the  Federal  statute,  modeled  upon  the 
long-standing  legislation  of  a  number  of  states,  prohibited  the 
charging  of  a  greater  rate  to  any  intermediate  point  than  was 
charged  to  a  more  distant  point  on  the  same  line;  provided, 
however,  that  traffic  moved  from  each  under  "  substantially 
similar  circumstances  and  conditions."  ^  In  the  celebrated 
Louisville  &  Nashville  case  in  1889,  the  Interstate  Commerce 
Commission  promptly  interpreted  this  latter  clause  as  permit- 
ting carriers  to  charge  less  to  the  more  distant  point  in  three 
contingencies :  viz.,  first,  when  there  was  water  competition ; 
secondly,  when  there  was  foreign  railway  competition  at  the 
more  distant  point ;  and  thirdly,  in  certain  "  rare  and  peculiar 
cases  "  not  conclusively  defined.  Under  this  interpretation  of 
the  law,  both  the  railways  and  the  Commission  proceeded,  until 
the  final  decision  of  the  Supreme  Court  in  1897  in  the  Alabama 
Midland  case,  with  which  our  reprints  under  this  heading  begin.^ 
In  substance  this  decision  held:  first,  that  the  existence  of  rail- 
way competition  at  the  more  distant  point  justified  the  railway 
in  charging  what  it  pleased  relatively  at  intermediate  points  ;  and 
secondly,  it  seemed  to  imply  that  the  carrier  was  a  competent 

1  This  theoretical  proposition  is  discussed  in  Ripley's  Railroads  :  Rates  and 
Regulation,  chaps,  iii  and  x. 

2  For  a  more  elaborate  discussion  of  this  topic,  vide,  Final  Report  United 
States  Industrial  Commission,  1900,  p.  433. 

3  The  original  decision  of  the  Interstate  Commerce  Commission,  p.  359  ;  and 
the  opinion  of  the  Supreme  Court,  p.  378. 


xxii  iNTKoimrrKm 

jiulijfo  as  to  (lit>  I'ontrolliiiu^  foivo  (»f  this  competition,  without 
ivfi'ieiu'o  to  tho  opinion  of  the  Interstate  Connneree  Connnis- 
sion.  How  fully  this  opinion  eniaseulated  the  original  statute 
is  vividly  described  by  Justice  Harlan  in  his  dissenting  opinion.^ 
The  Alabama  Midland  decision  was  rendered  in  1807.  Tliree 
cases,  —  the  Savannah  Freight  liureau;^  Dallas,  Texas;  and 
St.  Cloud,  Minnesota,'^ — decided  during  the  next  three  years, 
illustrate  the  scope  of  authority  exercised  by  the  Commission 
uniler  the  h)ng-and-short-haul  clause  as  thus  legally  interpreted. 
In  the  lirst  two  exemption  from  its  provisions  was  granted; 
that  is  to  say,  the  railways  were  permitted  to  charge  less  to  the 
more  distant  than  to  the  intermediate  points ;  while  in  the 
St.  Cloud  case  the  Commission  held  that  this  ought  not  to  be 
allowed.  For  in  this  last  case  it  appeared  that  the  practice  Avas 
actually  prejudicial  to  St.  Cloud,  while  in  the  other  two  the 
intermediate  points  suffered  no  peculiar  damage.  Many  other 
interesting  comparisons  between  these  cases  may  be  brought  out 
in  detailed  analysis  and  discussion.  Especial  interest  is  lent  to 
the  St.  Cloud  case,  however,  because,  although  granting  exemp- 
tion to  the  carriers,  the  Commission  was  evidently  struggling  to 
regain  some  of  the  authority  and  prestige  lost  by  the  Alabama 
Midland  decision.  The  arrogance  of  the  railroads,  especially  in 
the  southern  states,  seemed  to  render  necessary  either  new  legis- 
lation or  a  rehabilitation  of  the  old.  In  the  Danville,  Virginia, 
case"*  in  1900  the  Commission  sought  to  shift  its  ground,  mainly 
on  the  basis  of  another  decision  of  the  Supreme  Court,  as  a  read- 
ing of  the  case  w^ill  show.  It  thus  embarked  upon  a  line  of 
interpretation,  not  yet  at  this  writing  definitely  settled  by  the 
court  of  last  resort.^  Appeal  to  the  Supreme  Court  is  still  jDcnd- 
ing.  Meantime,  however,  the  entire  inadequacy  of  the  law,  unless 
the  new  powers  granted  by  the  Hepburn  Bill  of  1906  are  con- 
strued to  supplement  the  old  long-and-short-haul  clause  (which 
ap[)ears  doubtful),  is  amply  shown  by  tlie  Chattanooga  case. 
This,  as  well  as  the  Danville  case,  presents  a  picture  of  intolerable 

^  Vide,  p.  385.    Compare  also  p.  288,  infra,  in  the  Chattanooga  case. 
2  P.  314,  infra.  3  P.  279,  infra.  *  P.  402,  infra. 

''  TJipley's  Railroads:  Rates  and  Regulation,  chaps,  xiv  and  xix,  brings  this 
to  l'J12. 


INTEODUCTION  xxiii 

monopolistic  abuse  of  power  by  the  railways  of  the  southern 
states,  which  would  not  be  permitted  in  communities  where  pub- 
lic sentiment  is  more  alert  and  better  organized.^  Unless  some 
remedy  can  be  found  for  the  injustice  indicated  by  these  southern 
cases,  either  under  a  more  liberal  interpretation  of  the  long-and- 
short-haul  clause  or  by  means  of  the  newly  enacted  Hepburn 
Bill  of  1906,  a  constant  incentive  to  popular  agitation  will  exist. 
Two  cases  reprinted  herein  illustrate  the  complicated  phase  of 
the  distance  'problem.  vfh.Qve\n  several  shipping  points  at  various 
desrrees  of  remoteness  from  a  common  market  are  located,  not 
on  the  same  but  on  entirely  different  lines  of  railway.  At  Eau 
Claire,  "Wis.,^  for  example,  it  w^as  a  question  of  adjusting  rates 
from  a  number  of  lumber-producing  centers  over  a  series  of 
different  railways  converging  on  a  market  at  the  Missouri  river. 
The  convergence  of  these  lines  upon  a  common  market  renders 
this  case  somewhat  analogous  to  that  of  the  trunk  line  rate 
system,  based  upon  distance  percentages.^  Both  are  entirely 
different  from  the  Hutchinson  salt  case,^  in  which  rates  to  a 
common  market,  St.  Louis  or  New  Orleans,  not  on  converging 
lines,  but  on  railways  from  entirely  opposite  directions,  were 
called  in  question.  A  controversy  was  here  involved  as  to 
whether  St.  Louis  and  the  South  should  be  supplied  with  salt 
from  the  Kansas  or  the  Michigan  fields;  exactly  the  same 
contest  involved  of  late  in  the  struggle  of  the  lumbermen  of 
the  far  Northwest,  of  Louisiana,  of  the  far  Southeast,  and  of 
the  northern  central  states,  to  gain  entry  on  even  terms  to  the 
great  markets  of  Chicago  and  its  tributary  treeless  territory.^ 
In  such  cases  as  these  we  attain  the  climax  of  complexity  in  the 
problems  of  rate  adjustment.  Vast  areas,  a  multitude  of  inter- 
related rates,  and  the  welfare  of  large  populations  depend  upon 
their  just  settlement.  Fortunately  in  future  a  divided  responsi- 
bility between  the  traffic  managers  and  governmental  experts 

1  Cf.  especially  the  Savannah  Naval  Stores  case,  p.  252.  The  Troy  case 
(p.  359)  and  that  of  Dawson,  Ga.  (p.  387),  are  tyjjical  of  the  flagrant  discrimi- 
nation which  existed. 

2  P.  231,  infra.  ^  liipley's  Railroads,  chap.  x.  *  P.  21  (i,  hifra. 
S  This  is  ably  discussed  with  a  fine  map  in  the  Senate  Connnittec  on  Interstate 

Commerce  Hearings,  1905,  Vol.  II. 


xxiv  INl'KdDlCTlON 

seems  likolv  to  obtain  in  this  woik  sim-e  llie  enactment  of  the 
IlepUnrn  Bill  ot"  li>0().  'J'lie  decision  no  longer  rests  solely  with 
the  IralVic  nianiigcr,  rcpresontinLj:  only  one  of  the  many  parties 
in  interest. 

Certain  of  onr  eases  are  intended  to  contrast  the  general  sys- 
tfiiix  I'f  niilirdi/  r<(tcs  prevalent  in  different  sections  of  the  United 
States.  Three  main  divisions  are  distinguishable  ;  viz.,  tliose  of 
trunk  line  tt'rritory,  of  the  soutlicni  states,  and  of  the  trans- 
continental carriers,  including  the  Pacific  coast.  The  trunk 
line  si'henie,^  as  might  be  expected,  is  the' most  highly  devel- 
oped system,  not  only  from  the  point  of  view  of  simplicity  but 
of  justice  as  well.  It  illustrates  the  dominating  importance  of 
distance  as  a  factor  in  sound  rate  adjustment.  The  southern 
or  "  basing-point "  system,  exemplified  in  the  Troy ,2  Dawson,^ 
Chattanooga,"*  and  Danville  ^  cases,  lies  at  the  opposite  extreme. 
It  shows  what  evils  may  result  from  the  exercise  of  absolutely 
arbitrary  powers  by  railway  managers,  acting  solely  with  a  view 
to  their  own  interests  and  regardless  of  the  general  public  wel- 
fare. To  be  sure,  certain  geographical  difficulties,  no  greater 
than  those  of  trunk  line  territory,  but  peculiar  to  the  South, 
have  to  be  considered.  But  even  making  all  due  allowances, 
both  for  the  sparseness  of  its  population  and  the  frequency  of 
water  competition,  the  defiance  of  the  fundamental  principles  of 
justice  in  rate  making  are  a  constant  incentive  to  governmental 
interference. 

The  transcontinental  and  Pacific  coast  rate  systems  are  in- 
teresting and  peculiar,  involving  as  they  do  constant  consid- 
eration of  the  relative  merits  of  transportation  by  sea  and  rail- 
road. The  San  Bernardino  case*^  is  indicative  of  this  phase  of 
the  matter  with  reference  to  a  particular  class  of  goods  ;  while 
the  important  case  of  the  St.  Louis  jobl^ers "  raises  the  same 
issue  with  reference  to  a  long  list  of  commodities.  But  the 
latter  case  is  of  even  Avider  scope.    It  discusses  an  issue  which 

1  Transferred  in  this  edition  to  our  Kailroads :  Piatos  and  rjegulation,  cliap.  x. 
-  P.  350,  infra.  ^  P.  402,  infra. 

^  P.  .387,  infra.  ^  Interstate  Commerce  llejiorts,  Vol.  IX,  pp.  42-GO. 

*  P.  200,  infra.  ^  P.  429,  infra. 


INTRODUCTION  xxv 

constantly  arises  all  over  the  country  with  reference  to  disti'ib- 
utive  business.  Shall  California  be  supplied  with  hardware,  for 
example,  by  means  of  wholesale  shipments  to  San  Francisco, 
followed  by  redistribution  from  that  center ;  or  shall  the  primary 
distribution  take  place  from  Chicago  and  St.  Louis  direct?  The 
very  existence  of  San  Francisco  as  a  commercial  center  is  in- 
volved. It  is  the  everlasting  contest  for  supremacy  between  the 
great  cities  and  those  of  medium  size,  as  well  as  the  struggle 
of  each  locality  for  economic  independence.  All  through  this 
volume  issues  of  this  sort  are  manifest  to  the  observant  eye, 
underlying  what  may  appear  to  be  relatively  trivial  complaints 
from  a  financial  standpoint.  There  will  be  no  end  to  it  all  until 
the  firm  foundations  of  a  system  based  upon  some  scientific  prin- 
ciple, as  in  the  trunk  line  scheme,  shall  have  been  devised  and 
adopted  here  as  well  as  in  the  southern  states. 

The  Export  Rate  case  ^  is  important  as  bearing  upon  a  most 
difficult  problem  of  commercial  adjustment,  which  is  contin- 
ually cropping  up  for  settlement,  not  only  in  the  United  States 
but  all  over  Europe.^  It  might  have  been  better,  perhaps,  to 
have  reproduced  the  noted  Import  Rate  case,'^  in  which  the  In- 
terstate Commerce  Commission  was  finally  overruled  by  a  bare 
majority  opinion  in  the  Supreme  Court  of  the  United  States, 
after  having  been  upheld  in  the  two  lower  Federal  Courts  ;  but 
unfortunately  both  the  length  of  that  opinion  and  its  unsatis- 
factory literary  form  rendered  it  impossible  for  republication. 
The  issue  raised  concerned  the  legality  of  lower  through  rates 
on  imports  from  Liverpool  to  San  Francisco  via  New  Orleans 
than  were  granted  on  domestic  shipments  from  New  Orleans 
to  the  same  destination.  Thus  the  rate  on  books,  buttons,  and 
hosiery,  from  Liverpool  to  San  Francisco  through  New  Orleans, 
was  i  1.07  per  hundred  pounds.  At  the  same  time  the  domestic 
shipper  was  compelled  to  pay  $2,88,  or  two  and  one-half  times 
as  much,  for  a  haul  from  New  Orleans  to  San  Francisco  alone. 
In  another  important  case  tin  plate  was  carried  from  Liver- 
pool by  steamer  and  rail  through  Philadelphia  to  Chicago  for 

1  P.  487,  infra.  2  p.  7^1^  infra. 

3  Interstate  Commerce  Commission  Reports,  Vol.  IV,  pp.  460-533. 


xxvi  IN  ri;ol)r('T10N 

twenty-four  i-ents  por  liun(lit.'tl  poiiiuls.  l-'or  tlie  American  mer- 
chant in  riiilaiK'li>lii;i  the  rate  to  the  same  market  was  twenty- 
six  1'ent.s.  For  the  inhiiul  haul  ah)ne  the  l*ennsylvania  Kaihoad 
was  reeeivinix  sixteen  cents  un  the  foreign  goods,  while  eoinei- 
dentlv  charging  Ameriran  merchants  ten  cents  more  for  the 
same  service.  Discrimination  against  tlie  American  merchant 
in  favor  of  foreign  competition,  not  infrequently  more  than  suf- 
licient  to  overbalance  any  supposed  protection  afforded  by  tlie 
tariff,  has  been  repeatedly  proved  in  such  cases  as  this.  The 
duty  on  imported  cement  is  eight  cents  per  hundredweight. 
In  one  instance  this  duty  with  the  total  freight  rate  added 
amounted  to  only  eighteen  cents,  as  against  a  rate  of  twenty 
cents  for  the  domestic  producer  from  New  York  to  the  same 
point.  There  are  reasons  for  this  grievous  discrimination 
against  the  domestic  shipper,  mainly  concerned  with  the  vaga- 
ries of  ocean  freight  rates.  Steamers  must  have  ballast  for  the 
return  trip  to  equalize  outgoing  shipments  of  grain  and  other 
exports,  and  they  will  carry  heavy  commodities,  such  as  salt, 
cement,  crockery,  and  glass,  at  extremely  low  rates.  Neverthe- 
less such  imported  commodities  can  be  sold  to  advantage  in 
competition  with  domestic  goods  only  when  the  railways  will 
contribute  equally  low  rates  to  complete  the  shipment. 

The  Interstate  Commerce  Commission  in  this  Import  Rate 
case  originally  held  that  such  discriminations  were  unlawful. 
Finally,  however,  the  Supreme  Court  decided,  with  three  mem- 
bers, including  the  Chief  Justice,  dissenting,  that  the  Act  to 
Regulate  Commerce  as  phrased  did  not  expressly  prohibit  the 
practice.  Everything  turned  upon  the  interpretation  of  certain 
clauses  in  the  law.  No  question  was  ever  raised  as  to  the  eco- 
nomic issues  involved,  nor  was  it  competent  to  these  tribunals 
to  pass  upon  such  issues.  The  question  was  simply  and  solely 
this  :  When  the  Act  to  Regulate  Commerce  forbade  inequality 
or  discrimination  between  shippers,  did  it  contemplate  compe- 
tition between  one  shipment  originating  within  the  country 
and  others  from  foreign  ports  ?  Was  the  Interstate  Commerce 
Commission,  in  other  words,  empowered,  in  interpreting  this 
act,  to  consider  circumstances  and  conditions  without  as  well  as 


INTRODUCTION  xxvii 

within  the  boundaries  of  the  United  States  ?  If  it  was  entitled 
to  consider  solely  domestic  conditions,  it  was  certainly  right 
and  economically  sound  in  forbidding  such  practices ;  if,  on  the 
other  hand,  it  was  required  to  take  account  of  commercial  con- 
ditions the  world  over,  irrespective  of  the  effect  upon  the  do- 
mestic producer  and  internal  trade,  its  decision  should  have 
been  favorable  to  the  railroads.  To  appreciate  fully  the  ex- 
treme nicety  of  the  legal  points  involved  and  the  delicacy  of  the 
economic  interests  at  issue,  one  must  needs  read  the  extended 
opinions  both  of  the  majority  of  the  Supreme  Court  and  of  the 
three  dissenting  justices,  including  Chief  Justice  Fuller.  But 
to  interpret  the  reversal  of  the  original  decision  of  the  Inter- 
state Commerce  Commission  by  this  tribunal  as  in  the  slightest 
degree  involving  incompetence  or  judicial  unfairness  is  a  misrep- 
resentation of  all  the  facts  involved.  As  in  the  preceding  cases 
touching  the  interpretation  of  the  long-and-short-haul  clause,  it 
may  fairly  be  said  that  the  consensus  of  opinion  among  business 
men,  and  certainly  among  the  professional  economists  of  the  coun- 
try, is  on  the  side  of  the  Commission  in  condemning  such  prac- 
tices. As  to  the  law,  that  has  been  decided  otherwise  by  a  narrow 
majority.  An  important  question  before  the  country  is  as  to 
whether  a  law  thus  construed  should  not  be  amended  so  as  to 
permit  a  reasonable  limitation  of  such  abnormal  traffic  in  future. 

Governmental  regulation,  constituting  the  third  division  of  this 
volume,  is  in  fact  a  subject  much  wider  in  scope  than  the  mere 
control  of  common  carriers.  It  touches  and  includes  the  broad 
field  of  governmental  supervision  or  control,  not  of  railroads 
alone  but  of  all  public-service  corporations.  Many  of  the  con- 
siderations, for  example,  in  the  chapters  on  "  Reasonable  Rates  "  ^ 
and  "  The  Doctrine  of  Judicial  Review,"  ^  as  applied  to  Federal 
control  of  railroads,  are  equally  applicable  to  the  problems  of 
state  regulation  of  street  railways  or  of  municipal  control  of 
gas  and  electric  lighting  or  any  other  public  service.  Great 
underlying  principles  of  constitutional  law,  as  defined  by  the 
Federal  Courts,  are  shown  in  the  making. 

1  P.  507,  infra.  2  p.  019^  ,-„yva. 


xxviii  TNTnoPT^rTK^X 

As  an  episode  in  tlu'  liistorv  of  governmental  regulation  of 
piililic-service  conipariirs  the  i-naclment  ot"  the  lli'phurn  Hill  of 
li'OG  cannot  fail  to  lu'  of  note'  Not  only  on  account  of  tlu; 
scope  and  magnitude  of  the  interests  involved  —  covering,  as 
the  railway  net  doi-s,  the  entire  country,  and  representing  an 
investment  of  ><1 2,000,000,000  —  but  also  because  of  the  power- 
ful and  well-organized  opposition  presented  along  the  entire 
front,  this  piece  of  legislation  is  unique.  It  was  a  convincing 
demonstration  of  the  power  of  public  opinion  when  once  thor- 
oughly roused  and  ably  led.  The  problem  was  vastly  more 
dillicult  owing  to  the  phenomenal  growth  of  the  business.  The 
first  law  regulating  railways  was  passed  in  1887,  after  an  agi- 
tation extending  over  nearly  twenty  years.  Our  domestic  popu- 
lation from  1889  to  1903  increased  slightly  less  than  one  third. 
The  railroad  mileage  grew  in  about  the  same  proportion.  Yet 
the  freight  service  of  American  railroads  surpassed  this  rate  of 
growth  almost  five  times  over.  While  population  and  mileage 
increased  one  third,  the  railroads  in  1903  hauled  the  equivalent 
of  two  and  one-half  times  the  total  volume  of  freight  traffic 
handled  in  1889.  In  other  words,  the  ton  mileage  —  represent- 
inor  the  number  of  tons  of  freight  hauled  one  mile  —  increased 
from  68,700,000,000  to  173,200,000,000. 

Throughout  the  decade  to  1900  the  trend  of  affairs  was  all  in 
favor  of  railway  interests  as  against  the  government.  The  Ala- 
bama Midland  decision  of  1897  ^  thoroughly  emasculated  the 
long-and-short-haul  clause  of  the  original  act ;  and  the  Maxi- 
mum Rate  decision  in  the  Cincinnati  Freight  Bureau  cases  ^ 
deprived  the  Commission  of  any  effective  power  to  remedy  un- 
reasonable rates.  During  the  same  period  the  Anti-Trust  Act 
of  1890  was  greatly  limited  in  its  scope  by  a  number  of  legal 
decisions.  The  inevitable  reaction  ensued.  Under  the  leadership 
of  President  Roosevelt,  public  opinion  was  thoroughly  aroused. 
It   became  evident  to  all   unprejudiced   persons    that   radical 

1  Federal  legislation  since  1905  is  set  forth  in  detail  in  Kipley's  Railroads : 
Rates  and  Regulation,  pp.  487-627. 

2  P.  378,  infra.  »  P.  187,  infra. 


INTRODUCTION  xxix 

amendment  of  the  law  relating  to  railroad  regulation  was  neces- 
sary, not  only  to  protect  the  shippers  and  the  public  but  to  head 
off  the  possibility  of  government  ownership  of  railways  becom- 
ing a  great  political  issue  in  1908.  And  yet  so  powerfully 
organized  was  corporate  influence  that,  in  spite  of  aroused  public 
opinion,  dilatory  and  obstructive  tactics  seemed  likely  to  prevent 
any  effective  legislation.  Fortunately,  however,  at  this  critical 
juncture  came  the  astounding  revelations  of  fraud  and  corruption 
in  the  great  New  York  life-insurance  companies,  and  of  filth  and 
adulteration  in  the  Chicago  canning  and  packing  houses.  The 
Senate  yielded  to  the  pressure  from  the  President  and  the  House 
of  Representatives,  and  even  outdid  the  House  in  zeal  for  the 
public  welfare  by  adding  amendments  of  far-reaching  importance. 
The  Hepburn  Bill  of  1906  definitively  extending  the  principle 
of  detailed  governmental  supervision,  previously  exercised  only 
in  the  case  of  national  banks,  over  the  common  carriers  of  the 
country,  is  thus  worthy  of  the  closest  study,  not  alone  in  its  his- 
tory and  details  but  in  respect  of  its  influence  upon  the  future 
welfare  of  the  transportation  system  of  the  United  States. 

The  chapter  upon  judicial  determination  of  reasonable  rates  ^ 
is  of  peculiar  interest  as  describing  the  slow  process  by  which 
an  entire  reversal  of  opinion  by  the  Supreme  Court  of  the 
United  States  upon  a  fundamentally  important  question  may 
be  effected.  The  right-about-face  by  this  tribunal,  respecting 
the  relative  power  of  legislatures  and  courts  in  regulating  the 
charges  of  public-service  companies,  carries  the  mind  back  to 
the  reversal  of  judgment  of  that  august  body  a  generation  ago 
in  the  matter  of  the  issue  of  legal-tender  paper.  It  affords  a 
striking  illustration  of  what,  to  coin  a  phrase,  one  may  call  the 
"elastic  stability  "  of  our  fundamental  law.  By  the  enunciation  of 
the  "  Doctrine  of  Judicial  Review,"  ^  the  power  of  the  legislative 
branch  of  our  governments,  Federal,  state,  or  municipal,  is  defi- 
nitely subordinated  to  that  of  the  judiciary  in  all  questions  con- 
cerning the  rates  chargeable  for  public  service.  To  the  courts, 
therefore,  must  be  submitted  for  final  arbitrament,  all  con- 
troversies touching  the  reasonableness  of  railway  rates.    How 

1  P.  597,  infra.  2  Chapter  XXIV,  p.  019,  infra. 


xw  INTlxOnrCTION 

profoundly  this  (•oiulitioii  alTi'cU'd  tlu'  form  of  the  lh'})l)urii  liill 
of  llMM)  may  he  siH'ii  from  the  debates  in  Congress,  and  particu- 
larly in  the  Senate. 

Whether  the  Doetrine  of  Judicial  Keview,  subordinating  the 
l>riniary  la\v-makiu<;;  to  the  law-interpreting  branch  of  the  gov- 
ernment, will  permit  of  a  satisfactory  solution  of  the  ever-press- 
ing problem  of  public  regulation  of  railway  rates,  is  called  in 
(juestiou  in  the  chapter  upon  that  subject.^  The  great  issue  of 
the  opening  of  the  twentieth  century,  both  here  and  in  Europe, 
concerns  individual  rights  in  the  narrower  sense  and  private 
property,  on  the  one  hand,  as  opposed  to  public  welfare,  on  the 
other.  Always  conceding  that  the  success  of  Anglo-Saxon  insti- 
tutions is  attributable  in  large  measure  to  insistence  upon  the 
rights  of  the  individual,  it  is  nevertheless  incontrovertible  that 
the  swing  of  the  pendulum,  for  good  or  ill,  is  at  this  time  in 
the  direction  of  the  public  welfare,  more  or  less  regardless  of 
personal  or  property  lights.  One  sees  it  in  the  domain  of  fac- 
tory legislation,  of  taxation,  of  regulation  of  trusts  and  common 
carriers,  of  insurance,  —  a  long  series  of  statutes  prescribing 
the  conditions  under  which  women  and  children  and  even  adult 
men  may  labor;  the  quality  and  even  the  kind  of  food  and 
drink  which  they  may  consume;  the  forms  in  which  business 
enterprises  may  be  organized  and  the  subsequent  manner  in 
which  they  may  be  conducted ;  na}^  even  the  precise  form  in 
which  their  accounts  shall  be  kept.  Thus  the  problem  of  de- 
termining which  branch  of  the  government  shall  be  supreme  in 
matters  of  this  sort  is  one  which  is  vital  to  the  stability  of  our 
institutions,  but  also,  be  it  observed,  to  their  capacity  for  prog- 
ress. That,  within  the  narrow  domain  of  regulation  of  railway 
rates,  some  modification  of  present  judicial  opinion  is  necessary 
if  such  progress  —  defining  progress  in  the  narrow  sense  of 
change  conformable  to  the  popular  will  —  is  to  ensue,  cannot 
reasonal>ly  be  doubted.  In  any  event,  the  matter  is  one  open 
to  discussion,  and  of  such  paramount  importance  that  it  cannot 
long  be  overlooked  or  postponed.  Of  course  for  the  moment 
the  courts  stand  as  the  natural  champions  of '  individual  and 

1  P.  019,  infra. 


INTRODUCTION  xxxi 

property  rights,  but  it  should  never  be  forgotten  that  in  truly 
democratic  countries  the  judges  are  chosen  by  the  people 
directly  or  through  the  medium  of  a  selected  executive,  so  that 
this  condition  is  not  necessarily  an  enduring  one.  The  popular 
will  when  persistently  bent  upon  a  definite  goal  is  bound  to  pre- 
vail in  the  end.  In  the  best  interests  of  conservatism,  therefore, 
the  safest  course  for  the  judiciary  will  be  not  flatly  to  dam  the 
course  of  public  opinion  when  once  clearly  defined,  lest  a  flood 
sweeping  all  before  it  result.  That  happened  in  the  case  of  our 
Civil  War.  The  true  function  of  the  courts  should  be  to  hold 
back  the  impending  wateis  until  the  issue  is  clear,  and  thence- 
forth to  so  shape  or  divert  the  current  of  affairs  that  both  the 
individual  and  the  public  welfare  may  interact  upon  one  another 
to  the  good  of  both.  Reverting  to  the  specific  matter  of  regula- 
tion of  railway  rates,  one  cannot  doubt  that  some  such  compro- 
mise will  be  the  final  outcome. 

EurojJean  conditions  and  experience  in  railroad  matters,  de- 
scribed in  the  final  division  of  these  reprints,  have  until  recently 
received  little  attention  in  the  United  States.  Our  problems 
were  unique  in  themselves  ;  and  in  so  vast  an  area  rail  trans- 
portation was  from  the  outset  so  vital  to  extended  existence 
that  the  United  States  has  been  rather  a  pioneer  than  an  imi- 
tator of  Europe  in  all  matters  pertaining  to  construction  and 
operation.  But  now  that  affairs  are  entering  upon  another 
stage  of  development,  what  with  governmental  regulation  and 
the  increasing  density  of  population,  it  appears  that  much  val- 
uable information  may  be  gleaned  from  European  experience. 
At  the  present  time  this  is  peculiarly  true  of  the  British  Isles, 
where  the  economic  condition  of  private  ownership  and  operation 
prevails  as  in  the  United  States.  On  the  other  liand,  owing  to 
its  minute  area,  with  omnipresent  water  carriage  by  sea,  the 
problems  imposed  by  British  geographical  conditions  are  less 
instructive  perhaps  than  those  upon  the  Continent,  especially  in 
Germany  and  France. 

With  private  ownership  and  operation  of  railways,  the  British 
government  has  had  an  extended  experience  in  regulation  by 


xxxii  INTKOnrCTIOX 

governmental  authority.  Tlu'  last  fruits  of  this  are  set  forth  in 
detail,  in  our  chapter  upon  •'  The  Englisii  Railway  and  Canal 
C\inunission."  '  The  prohUnu  however,  is  simpler  than  ours,  by 
reason  of  tlie  fact  that  all  control  tlows  from  one  source,  not 
beini;  divided  as  in  the  United  States  between  a  Federal  Congress 
and  administrative  Commission  and  a  host  of  entirely  inde- 
pendent state  legislatures  and  conniiissions.  Moreover,  in  the 
Hritisii  Isles,  it  should  be  noted,  the  difficult  questions  of 
authority  raised  by  the  presence  of  a  Constitution  do  not  come 
into  play.  Parliament  is  supreme  in  legislative  matters ;  its 
word  is  law.  The  will  of  the  people  may  be  expressed  statutorily, 
at  any  time,  regardless  alike  of  legislative  and  judicial  precedent. 
Protection  for  vested  interests  lies  in  a  restricted  suffrage 
together  with  the  innate  conservatism  and  sense  of  fair  play 
of  the  British  people.  Thus  freed  from  judicial  trammels,  it  is 
of  interest  to  observe  what  has  been  accomplished  in  the  line  of 
regulation.  Among  the  peculiarities  of  the  situation  one  notes 
the  entire  absence  of  our  great  evil  of  personal  discrimination 
and  rebating ;  ^  and  especially  that  much  of  the  activity  of  the 
Railway  and  Canal  Commission  is  analogous  rather  to  the  work 
of  some  of  the  best  of  our  state  commissions,  Massachusetts 
and  Wisconsin  for  example,  than  of  the  Federal  Interstate 
Commerce  Commission,  Pooling,  likewise,  and  contracts  pro- 
viding for  division  of  the  field,  permitting  of  an  avoidance  of 
the  evils  of  excessive  competition  are  allowed,  not  forbidden  as 
in  the  United  States.  The  business  consists  to  a  far  greater 
degree  of  small  or  retail  shipments.  The  problems  of  classifica- 
tion arising  from  widely  different  climatic,  industrial,  and  social 
conditions  do  not  complicate  matters.  But,  on  the  other  hand, 
the  radical  step  has  been  taken  of  detailed  prescription  by  law 
both  of  freight  rates  and  classification.  The  Dominion  of  Canada 
in  1903  has  proceeded  even  farther  in  this  direction,  its  law 
upon  the  subject  being  based  upon  the  Report  upon  Railway 
Rate  Grievances  of  1902,  drawn  up  by  Professor  S.  J.  McLean, 
author  of  our  chapter  upon  the   English   Commission.     The 


1  Chapter  XXVII,  p.  745,  infra. 

2  Cf .  p.  760,  infra. 


INTRODUCTION  xxxiii 

Canadian  Board  of  Railway  Commissioners  combines  all  the 
powers  of  the  English  Commission  with  those  vested  in  the 
British  Board  of  Trade.  There  is  conferred  a  concentration  of 
power  over  rates,  both  in  England  and  Canada,  beside  which 
even  our  amended  law  of  1906  appears  pale  and  colorless. 
Altogether  the  British  experience  is  highly  suggestive  in  all 
that  concerns  government  regulation. 

Government  ownership  of  railroads  is  so  obviously  a  remote 
possibility  in  the  United  States,  so  long  as  administrative  regu- 
lation is  effectively  applied,  that  the  experience  of  Germany 
in  this  field  would  seem  to  be  unimportant.  And  yet,  having 
due  regard  to  her  superb  administrative  system,  and  to  her 
peculiar  industrial  problems,  the  service  is  so  admirably  adapted 
to  her  needs  that  it  amply  repays  close  investigation.  From 
the  point  of  view  of  public  finance  alone,  the  Prussian  achieve- 
ment of  government  ownership  is  extraordinary.  In  1882,  with 
a  gross  income  of  about  1109,000,000,  a  clear  surplus  above 
expenses  and  interest  on  debt  of  slightly  more  than  110,000,000 
resulted.  This  net  profit  has  steadily  risen.  Ten  years  later 
it  was  about  $25,000,000 ;  and  in  1900  it  had  increased  to 
$99,000,000.  In  1905,  with  a,  gross  income  of  approximately 
1405,000,000  (1,621,000,000  marks)  expenses  absorbed  about 
$250,000,000,  and  interest  charges  about  $28,000,000,  leaving 
a  net  profit  on  the  investment  of  more  than  $125,000,000 
(503,000,000  marks).  A  return  of  something  like  five  and  one- 
half  per  cent  on  the  capital  investment  is  indeed  a  notable  result 
in  government  finance.  This  has  been  made  possible  because 
of  two  unique  conditions ;  the  wonderful  industrial  growth  of 
Germany  in  the  last  two  decades,  and  the  high  standard  both  of 
technical  education  and  of  the  personnel  of  the  government 
service.  The  railway  net  comprises  only  about  one  seventh  of 
the  mileage  of  our  American  roads,  all  operated  in  a  densely 
populated  country  with  high-grade  traffic.  No  reasonable  con- 
clusion can  be  drawn  from  these  results  as  to  the  advantages  of 
government  ownership  in  a  vast,  sparsely  settled  region  like  the 
United  States.  But  we  can  learn  much  from  certain  features 
of  the  management  of  these  German  railroads,  as  set  forth  in 


xwiv  lNTU()lU("rio:N 

our  rhuptor  on  the  siibjoi't."  One  of  the  most  admirable  features 
is  the  system  of  advisory  eouncils,  composed  jointly  of  trallic 
ollicials  and  of  prominent  representatives  of  shippers.  Extended 
deliberation  upon  every  adjustment  of  rates  ensues;  all  possible 
eomplications  are  considered,  with  reference  to  export  trade, 
fiscal  receipts,  economy  in  operation,  territorial  competition, 
and  the  like.  Observation  in  the  tield  strengthens  the  conclusion 
that  a  dejjfree  of  peace  and  co()peration  between  the  railroads 
and  the  shippino-  public,  far  better  than  that  which  prevails 
to-day  in  the  United  States,  has  followed  as  a  result.  The 
avoidance  of  economic  wastes,  such  as  are  described  in  our 
chapter  on  the  subject,  are  also  strontrly  in  contrast  with  our 
American  practices.  It  is  my  conviction,  all  things  considered, 
that  our  American  transportation  system  is  the  best  in  the 
world.  All  the  more  reason  why  we  should  open  our  eyes  to 
the  excellences  of  the  railroad  systems  of  foreign  couutries. 

WILLIAM  Z.  RIPLEY 
IIauvari)  Univkusity 

1  V.  80n,  infra. 


EAILWAT  PROBLEMS 


A  CHAPTER  OF  ERIEi 

THE  history  of  the  Erie  Railway  has  been  a  checkered  one. 
Chartered  in  1832,  and  organized  in  1833,  the  cost  of  its 
construction  was  then  estimated  at  three  millions  of  dollars,  of 
which  but  one  million  was  subscribed.  By  the  time  the  first 
report  was  made  the  estimated  cost  had  increased  to  six  millions, 
and  the  work  of  construction  was  actually  begun  on  the  strength 
of  stock  subscriptions  of  a  million  and  a  half,  and  a  loan  of 
three  millions  from  the  State.  In  1842  the  estimated  cost 
had  increased  to  twelve  millions  and  a  half,  and  Ijoth  means  in 
hand  and  credit  were  wholly  exhausted.  Subscription  books 
were  opened,  but  no  names  were  entered  in  them  ;  the  city  of 
New  York  was  applied  to,  and  refused  a  loan  of  its  credit; 
again  the  legislature  was  besieged,  but  the  aid  from  this  quarter 
was  now  hampered  with  inadmissible  conditions  ;  accordingly 
work  was  suspended,  and  the  property  of  the  insolvent  corpora- 
tion passed  into  the  hands  of  assignees.  In  1845  the  State  came 
again  to  the  rescue  ;  it  surrendered  all  claim  to  the  three  millions 
it  had  already  lent  to  the  company ;  and  one  half  of  their  old 
subscriptions  having  been  given  up  by  the  stockholders,  and  a 
new  subscription  of  three  millions  raised,  the  whole  property 
of  the  road  was  mortgaged  for  three  millions  more.  At  last, 
in  1851,  eighteen  years  after  its  commencement,  the  road  was 
opened  from  Lake  Erie  to  tide  water.  Its  financial  troubles 
had,  however,  as  yet  only  begun,  for  in  1859  it  could  not  meet 
the  interest  on  its  mortgages,  and  passed  into  the  hands  of  a 

1  From  Chapters  of  Erio  and  Other  Essays,  by  (Hons.)  Charles  Francis  Adams 
and  Henry  Adams,  New  York,  1880.  By  permission.  The  historical  setting  of 
these  events  is  given  in  Riijley's  Railroads,  both  in  the  volume  on  Kates  (p.  10) 
and  that  on  Finance  (Stock-watering,  etc.). 

1 


2  i;aii.\\.\\    I'K'or.i.MMS 

rcriMvor.  In  1S()1  an  :iriaiii;iMnon(  of  interests  was  effected, 
and  a  now  company  was  orLCiiiii/i'd.  The  next  year  the  old 
Ni'w  York  \-  Erie  Ivaili'oad  ('oni})any  disa^jpeared  nnder  a  fore- 
closnii'  ttf  llic  tilth  mortgage,  and  the  pri'sent  Erie  Railway 
Company  rt)se  from  its  ashes.  INlcanwhile  the  original  estimate 
of  three  millions  had  develo})ed  into  an  actual  outlay  of  fifty 
millions;  the  470  niilcs  of  track  opened  in  1842  had  expanded 
into  773  miles  in  1S('»S;  and  the  revenue,  which  the  projectors 
had  "eonlidently"  estimated  at  something  less  than  two  millions 
in  1833,  amounted  to  over  live  millions  when  the  road  passed 
into  tlie  hands  of  a  receiver  in  1859,  and  in  1865  reached  the 
enormous  sum  of  sixteen  millions  and  a  half. 

The  series  of  events  in  the  Erie  history  which  culminated  in 
the  struggle  about  to  be  narrated  may  be  said  to  have  had  its 
origin  some  seventeen  or  eighteen  3^ears  before,  when  Mr.  Daniel 
Drew  first  made  his  appearance  in  the  Board  of  Directors,  where 
he  remained  down  to  the  year  1868,  generally  holding  also  the 
office  of  treasurer  of  the  corporation.  Mr.  Drew  is  what  is 
known  as  a  self-made  man.  Born  in  the  year  1797,  as  a  boy 
he  drove  cattle  down  from  his  native  town  of  Carmel,  in  Put- 
nam County,  to  the  market  of  New  York  City,  and,  subse- 
quently, was  for  years  proprietor  of  the  Bull's  Head  Tavern. 
Like  his  contemporary,  and  ally  or  opponent,  —  as  the  case  might 
be,  Cornelius  Vanderbilt,  he  built  up  his  fortunes  in  the  steam- 
boat interest,  and  subsequently  extended  his  operations  over  the 
rapidly  developing  railroad  system.  Shrewd,  unscrupulous,  and 
very  illiterate, — a  strange  combination  of  superstition  and  faith- 
lessness, of  daring  and  timidity,  —  often  good-natured  and  some- 
times generous,  —  he  ever  regarded  his  fiduciary  position  of 
director  in  a  railroad  as  a  means  of  manipulating  its  stock  for 
his  own  advantage.  For  years  he  had  been  the  leading  bear  of 
Wall  Street,  and  his  favorite  haunts  were  the  secret  recesses  of 
Erie.  As  treasurer  of  that  corporation,  he  had,  in  its  frequently 
recurring  hours  of  need,  advanced  it  sums  which  it  could  not 
have  obtained  elsewhere,  and  the  obtaining  of  which  was  a 
necessity.    He  had  been  at  once  a  good  friend  of  the  road  and 


A  CHAPTER   OF  ERIE  3 

the  worst  enemy  it  had  as  yet  known.  His  management  of  his 
favorite  stock  had  been  cunning  and  recondite,  and  his  ways 
inscrutable.  Those  who  sought  to  follow  him  and  those  who 
sought  to  oppose  him,  alike  found  food  for  sad  reflection ;  until 
at  last  he  won  for  himself  the  expressive  sobriquet  of  the  Specu- 
lative Director.  Sometimes,  though  rarely,  he  suifered  greatly 
in  the  complications  of  Wall  Street ;  more  frequently  he  inflicted 
severe  damage  upon  others.  On  the  whole,  however,  his  for- 
tunes had  greatly  prospered,  and  the  outbreak  of  the  Erie  war 
found  him  the  actual  possessor  of  some  millions,  and  the  reputed 
possessor  of  many  more. 

In  the  spring  of  1866  Mr.  Drew's  manipulations  of  Erie  cul- 
minated in  an  operation  which  was  at  the  time  regarded  as  a 
masterpiece ;  subsequent  experience  has,  however,  so  improved 
upon  it  that  it  is  now  looked  upon  as  an  ordinary  and  inartistic 
piece  of  what  is  called  "  railroad  financiering,"  a  class  of  opera- 
tions formerly  known  by  a  more  opprobrious  name.  The  stock 
of  the  road  was  then  selling  at  about  95,  and  the  corporation 
was,  as  usual,  in  debt,  and  in  pressing  need  of  money.  As 
usual,  also,  it  resorted  to  its  treasurer.  Mr.  Drew  stood  ready 
to  make  the  desired  advances  —  upon  security.  Some  twenty- 
eight  thousand  shares  of  its  own  authorized  stock,  which  had 
never  been  issued,  were  at  the  time  in  the  hands  of  the  com- 
pany, which  also  claimed,  under  the  statutes  of  New  York,  the 
right  of  raising  money  by  the  issue  of  bonds,  convertible,  at  the 
option  of  the  holder,  into  stock.  The  twenty-eight  thousand 
unissued  shares,  and  bonds  for  three  millions  of  dollars,  con- 
vertible into  stock,  were  placed  by  the  company  in  the  hands 
of  its  treasurer,  as  security  for  a  cash  loan  of  |>3, 600,000. 
The  negotiation  had  been  quietly  effected,  and  Mr.  Drew's 
campaign  now  opened.  Once  more  he  was  short  of  Erie. 
While  Erie  was  buoyant,  —  while  it  steadily  approximated  to 
par,  —  while  speculation  was  rampant,  and  that  outside  public, 
the  delight  and  the  prey  of  Wall  Street,  was  gradually  drawn 
in  by  the  fascination  of  amassing  wealth  without  labor,  — 
quietly  and  stealthily,  through  his  agents  and  brokers,  the 
grave,  desponding  operator  was  daily  concluding  his  contracts 


4  KAII,\V\\"    riior.LKMs 

for  the  futiiri'  dclivciv  of  stock  at  cuirent  j)riees.  At  last  the 
hour  h;ul  coiiu'.  l^iie  w as  risiiit;,  l^rie  w;us  scarce,  the  great  hear 
hail  many  contraits  to  fullill,  and  where  was  he  to  lind  the 
stock?  His  victims  wcie  not  kept  h)nL,'  in  suspense.  Mr. 
Treasurer  Drew  hiid  his  hands  ui)()n  his  coUateraL  In  an 
instant  the  honds  for  thri'c  millions  were  converted  into  an 
equivalent  amount  of  capital  stock,  and  fifty-eight  thousand 
shares,  dumped,  as  it  were,  by  the  cartload  in  Broad  Street, 
made  Erie  as  plenty  as  even  Drew  could  desire.  Before  the 
astonished  bulls  could  rally  their  faculties,  the  quotations  had 
fallen  from  95  to  50,  and  they  realized  that  they  were  hope- 
lessly entrapi)ed. 

The  whole  transaction,  of  course,  was  in  no  respect  more 
creditable  than  any  result,  supposed  to  be  one  of  chance  or 
skill,  which,  in  fact,  is  made  to  depend  upon  the  sorting  of 
a  pack  of  cards,  the  dosing  of  a  race  horse,  or  the  selling  out 
of  his  powers  by  a  "  walkist."  But  the  gambler,  the  patron  of 
the  turf,  or  the  pedestrian  represents,  as  a  rule,  himself  alone, 
and  his  character  is  generally  so  well  understood  as  to  be  a 
warning  to  all  the  world.  The  case  of  the  treasurer  of  a  great 
corporation  is  different.  He  occupies  a  fiduciary  position.  He 
is  a  trustee,  —  a  guardian.  Vast  interests  are  confided  to  his 
care  ;  every  shareholder  of  the  corporation  is  his  ward ;  if  it 
is  a  railroad,  the  community  itself  is  his  cestui  que  trust.  But 
passing  events,  accumulating  more  thickly  with  every  year, 
have  thoroughly  corrupted  the  public  morals  on  this  subject. 
A  directorship  in  certain  great  corporations  has  come  to  be 
regarded  as  a  situation  in  which  to  make  a  fortune,  the  pos- 
session of  which  is  no  longer  dishonorable.  The  method  of 
accumulation  is  both  simple  and  safe.  It  consists  in  giving 
contracts  as  a  trustee  to  one's  self  as  an  individual,  or  in  specu- 
lating in  the  property  of  one's  cestui  que  trust,  or  in  using  the 
funds  confided  to  one's  charge,  as  treasurer  or  otherwise,  to 
gamble  with  the  real  owners  of  those  funds  for  their  own  prop- 
erty, and  that  with  cards  i)acked  in  advance.  The  wards  them- 
selves expect  their  guardians  to  throw  the  dice  against  them 
for  their  own  property,  and  are  surprised,  as  well  as  gratified, 


A  CHAPTER  OF  ERIE  5 

if  the  dice  are  not  loaded.  These  proceedings,  too,  are  looked 
upon  as  hardly  reprehensible,  yet  they  strike  at  the  very  foun- 
dation of  existing  society.  The  theory  of  representation,  whether 
in  politics  or  in  business,  is  of  the  essence  of  modern  develop- 
ment. Our  whole  system  rests  upon  the  sanctity  of  the  fidu- 
ciary relations.  Whoever  betrays  them,  a  director  of  a  railroad 
no  less  than  a  member  of  Congress  or  the  trustee  of  an  orplians' 
asylum,  is  the  common  enemy  of  every  man,  woman  and  child 
who  lives  under  representative  government.  The  unscrupulous 
director  is  far  less  entitled  to  mercy  than  the  ordinary  gambler, 
combining  as  he  does  the  character  of  the  traitor  with  the  acts 
of  the  thief. 

No  acute  moral  sensibility  on  this  point,  however,  has  for 
some  years  troubled  Wall  Street,  nor,  indeed,  the  country  at 
large.  As  a  result  of  the  transaction  of  1866,  Mr.  Drew  was 
looked  upon  as  having  effected  a  surprisingly  clever  operation, 
and  he  retired  from  the  field  hated,  feared,  wealthy,  and  admired. 
This  episode  of  Wall  Street  history  took  its  place  as  a  brilliant 
success  beside  the  famous  Prairie  du  Chien  and  Harlem  "  cor- 
ners,"- and,  but  for  subsequent  events,  would  soon  have  been 
forgotten.  Its  close  connection,  however,  with  more  important 
though  later  incidents  of  Erie  history  seems  likely  to  preserve 
its  memory  fresh.  Great  events  were  impending ;  a  new  man 
was  looming  up  in  the  railroad  world,  introducing  novel  ideas 
and  principles,  and  it  could  hardly  be  that  the  new  and  old 
would  not  come  in  conflict.  Cornelius  Vanderbilt,  commonly 
known  as  Commodore  Vanderbilt,  was  noAV  developing  his  theory 
of  the  management  of  railroads. 

Born  in  the  year  1794,  Vanderbilt  was  a  somewhat  older 
man  than  Drew.  There  are  several  points  of  resemblance  in 
the  early  lives  of  the  two  men,  and  many  points  of  curious 
contrast  in  their  characters.  Vanderbilt,  like  Drew,  was  born 
in  very  humble  circumstances  in  the  State  of  New  York,  and 
like  him  also  received  little  education.  He  began  life  by  ferry- 
ing passengers  and  produce  from  Staten  Island  to  New  York 
City.  Subsequently,  he  too  laid  the  foundation  of  his  great 
fortune  in  the  growing  steamboat  navigation,  and  likewise,  in 


6  KAiLWAV   ruor.i.KMS 

due  i'oui"so  of  time,  trans forroil  himself  to  the  railroad  interest. 
W'lu'n  at  last,  in  ISliS,  tlu'  two  canu!  into  collision  as  n-pre- 
soiitativi's  of  till'  oUl  sNsli'in  of  railioad  management  and  of  the 
now,  lliey  were  eaeh  threeset)re  and  ten  years  of  age,  and  liad 
both  been  suecessfnl  in  the  aecnmulation  of  millions,  —  Van- 
derbilt  even  more  so  than  l)rew\  i'hey  were  probably  equally 
unserupulous  and  eciually  sellish ;  but,  while  the  cast  of  Drew's 
mind  was  soud)er  and  bearish,  Vanderbilt  was  gay  and  buoyant 
of  temperament,  little  given  to  thoughts  other  than  of  this 
world,  a  lover  of  horses  and  of  the  good  things  of  life.  The 
first  affects  prayer  meetings,  aud  the  last  is  a  devotee  of  whist. 
Drew,  in  Wall  Street,  is  by  temperament  a  bear,  \v'hile  Vander- 
bilt could  hardly  be  other  than  a  bull.  Vanderbilt  must  be 
allowed  to  be  by  far  the  superior  man  of  the  two.  Drew  is 
astute  and  full  of  resources,  and  at  all  times  a  dangerous  oppo- 
nent ;  but  Vanderbilt  takes  larger,  more  comprehensive  views, 
and  his  mind  has  a  vigorous  grasp  which  that  of  Drew  seems 
to  want. 

^  ^  ^  .)|^  ^.  ^  ^  ^ 

Two  great  lines  of  railway  traverse  the  State  of  New. York 
and  connect  it  with  the  West,  —  the  Erie  and  the  New  York 
Central.  The  latter  communicates  with  the  city  by  a  great 
river  and  by  two  railroads.  To  get  these  two  roads  —  the  Har- 
lem and  the  Hudson  River  —  under  his  own  absolute  control, 
and  then,  so  far  as  the  connection  with  the  Central  was  con- 
cerned, to  abolish  the  river,  was  Vanderbilt's  immediate  object. 
First  making  himself  master  of  the  Harlem  road,  he  there 
learned  his  early  lessons  in  railroad  management,  and  picked 
up  a  fortune  by  the  way.  A  few  years  ago  Harlem  had  no 
value.  As  late  as  1860  it  sold  for  eight  or  nine  dollars  per 
share;  and  in  January,  1863,  when  Vanderbilt  had  got  the 
control,  it  had  risen  only  to  30.  By  July  of  that  year  it  stood 
at  92,  and  in  August  was  suddenly  raised  by  a  "corner"  to 
179.  The  next  year  witnessed  a  similar  operation.  The  stock 
which  sold  in  January  at  less  than  90  was  settled  for  in 
June  in  the  neighborhood  of  285.  On  one  of  these  occasions 
Mr.  Drew  is  reported  to  have  contributed  a  sura  approaching 


A  CHAPTER   OF   ERIE  7 

half  a  million  to  his  rival's  wealth.  More  recently  the  stock 
had  been  Hoated  at  about  130.  It  was  in  the  successful  con- 
duct of  this  first  experiment  that  Vanderbilt  showed  his  very 
manifest  superiority  over  previous  railroad  managers.  The 
Harlem  was,  after  all,  only  a  competing  line,  and  competition 
was  proverbially  the  rock  ahead  in  all  railroad  enterprise.  The 
success  of  Vanderbilt  with  the  Harlem  depended  upon  his  get- 
ting rid  of  the  competition  of  the  Hudson  lliver  Kailroad.  An 
ordinary  manager  would  have  resorted  to  contracts,  which  are 
never  carried  out,  or  to  opposition,  which  is  apt  to  be  ruinous. 
Vanderbilt,  on  the  contrary,  put  an  end  to  competition  by  buy- 
ing up  the  competing  line.  This  he  did  at  about  par,  and,  in 
due  course  of  time,  the  stock  was  sent  up  to  180.  Thus  his 
plans  had  developed  by  another  step,  while  through  a  judicious 
course  of  financiering  and  watering  and  dividing,  a  new  fortune 
had  been  secured  by  him.  By  this  time  Vanderbilt's  reputation 
as  a  railroad  manager  —  as  one  who  earned  dividends,  created 
stock,  and  invented  wealth  —  had  become  very  great,  and  the 
managers  of  the  Central  brought  that  road  to  him,  and  asked  him 
to  do  with  it  as  he  had  done  with  the  Harlem  and  Hudson  River. 
He  accepted  the  proffered  charge,  and  now,  probably,  the  possi- 
bilities of  his  position  and  the  magnitude  of  the  prize  within  his 
grasp  at  last  dawned  on  his  mind.  Unconsciously  to  himself, 
working  more  wisely  than  he  knew,  he  had  developed  to  its 
logical  conclusion  one  potent  element  of  modern  civilization. 
******** 

The  New  York  Central  passed  into  Vanderbilt's  hands  in 
the  winter  of  186G-G7,  and  he  marked  the  Erie  for  his  own  in 
the  succeeding  autumn.  As  the  annual  meeting  of  the  corpora- 
tion approached,  three  parties  were  found  in  the  field  contend- 
ing for  control  of  tlie  road.  One  party  was  represented  l)y  Drew, 
and  might  be  called  the  party  in  possession,  that  wliich  had 
long  ruled  the  Erie,  and  made  it  what  it  was,  —  the  Scarlet 
Woman  of  Wall  Street.  Next  came  Vanderbilt,  flushed  with 
success,  and  bent  upon  fully  gratifying  his  great  instinct  for 
developing  imperialism  in  corporate  life.  Lastly,  a  faction  made 
its  appearance  composed  of  some  shrewd  and  ambitious  Wall 


8  KAII,\VA^     I'Kor.LK.MS 

Stroot  operators  niul  of  certiiiii  persons  lioiii  Boston,  who  sns- 
tuiiioil  ioY  the  occasion  the  novel  ch;uact(>r  of  railroad  reformers. 
Tliis  party,  it  is  needless  to  say,  was  as  unscrupulous,  and,  as 
the  result  proved,  us  ahle  as  either  of  the  others  ;  it  represented 
nothing  but  a  raid  made  upon  the  Erie  treasury  in  the  interest 
of  a  thorouglily  bankrupt  New  England  corporation,  of  which 
its  members  had  the  control.  The  liistory  of  this  corporation, 
known  as  the  Boston,  Hartford  &  Erie  Railroad,  —  a  projected 
feeder  and  connection  of  the  Erie,  —  would  be  one  curious  to 
read,  though  very  dillicult  to  write.  Its  name  was  synonymous 
with  bankruptcy,  litigation,  fraud,  and  failure.  If  the  Erie  was 
of  doubtful  repute  in  Wall  Street,  the  Boston,  Hartford  &  Erie 
had  long  been  of  worse  than  doubtful  rei)ute  in  State  Street. 
Of  late  years,  under  able  and  persevering,  if  not  scrupulous 
management,  the  bankrupt,  moribund  company  had  been  slowly 
struggling  into  new  life,  and  in  the  spring  of  1867  it  had 
obtained,  under  certain  conditions,  from  the  Commonwealth  of 
Massachusetts,  a  subsidy  in  aid  of  the  construction  of  its  road. 
One  of  the  conditions  imposed  obliged  the  corporation  to  raise 
a  sum  from  other  sources  still  larger  than  that  granted  by  the 
State.  Accordingly,  those  having  the  line  in  charge  looked 
abroad  for  a  victim,  and  fixed  their  eyes  upon  the  Erie. 

As  the  election  day  drew  near,  Erie  was  of  course  for  sale. 
A  controlling  interest  of  stockholders  stood  ready  to  sell  their 
proxies,  with  entire  impartiality,  to  any  of  the  three  contending 
parties,  or  to  any  man  who  would  pay  the  market  price  for 
them.  Nay,  more,  the  attorney  of  one  of  the  contending  parties, 
as  it  afterwards  appeared,  after  an  ineffectual  effort  to  extort 
blackmail,  actually  sold  the  proxies  of  his  principal  to  another 
of  the  contestants,  and  his  doing  so  seemed  to  excite  mirth 
rather  than  surprise.  Meanwhile  the  representatives  of  the 
Eastern  interest  played  their  part  to  admiration.  Taking  ad- 
vantage of  some  Wall  Street  complications  just  then  existing 
between  Vanderbilt  and  Drew,  they  induced  the  former  to 
ally  himself  with  them,  and  the  latter  saw  that  his  defeat  was 
inevitable.  Even  at  this  time  the  Vanderbilt  party  contemplated 
having  recourse,  if  necessary,  to  the  courts,  and  a  petition  for 


A  CHAPTER  OF   EKIE  9 

an  injunction  had  been  prepared,  setting  forth  the  details  of 
the  "  corner  "  of  1866.  On  the  Sunday  preceding  the  election 
Drew,  in  view  of  his  impending  defeat,  called  upon  Vanderbilt. 
That  gentleman,  thereupon,  very  amicably  read  to  him  the  legal 
documents  prepared  for  his  benefit ;  whereupon  the  ready  treas- 
urer at  once  turned  about,  and,  having  hitherto  been  hampering 
the  Commodore  by  his  bear  operations,  he  now  agreed  to  join 
hands  with  him  in  giving  to  the  market  a  strong  upward  tend- 
ency. Meanwhile  the  other  parties  to  the  contest  were  not 
idle.  At  the  same  house,  at  a  later  hour  in  the  day,  Vanderbilt 
explained  to  the  Eastern  adventurers  his  new  plan  of  opera- 
tions, which  included  the  continuance  of  Drew  in  his  director- 
ship. These  gentlemen  were  puzzled,  not  to  say  confounded, 
by  this  sudden  change  of  front.  An  explanation  was  demanded, 
some  plain  language  followed,  and  the  parties  separated,  leaving 
everything  unsettled ;  but  only  to  meet  again  at  a  later  hour  at 
the  house  of  Drew.  There  Vanderbilt  brought  the  new  men  to 
terms  by  proposing  to  Drew  a  bold  coup  de  main,  calculated  to 
throw  them  entirely  out  of  the  direction.  Before  the  parties 
separated  that  night  a  written  agreement  had  been  entered 
into,  providing  that,  to  save  appearances,  the  new  board  should 
be  elected  without  Drew,  but  that  immediately  thereafter  a 
vacancy  should  be  created,  and  Drew  chosen  to  fill  it.  He  was 
therefore  to  go  in  as  one  of  two  directors  in  the  Vanderbilt 
interest,  that  gentleman's  nephew,  Mr.  Work,  being  the  other. 

This  programme  was  faithfully  carried  out,  and  on  the  2d  of 
October  Wall  Street  was  at  once  astonished,  by  the  news  of 
the  defeat  of  the  notorious  leader  of  the  bears,  and  bewildered 
by  the  immediate  resignation  of  a  member  of  the  new  board  and 
the  election  of  Drew  in  his  place.  Apparently  he  had  given  in 
his  submission,  the  one  obstacle  to  success  was  removed,  and 
the  ever-victorious  Commodore  had  now  but  to  close  his  fin- 
gers on  his  new  prize.  Virtual  consolidation  on  the  Vanderbilt 
interest  seemed  a  foregone  conclusion. 

******** 

The  real  conflict  was  now  impending.  Commodore  Vander- 
bilt stretched  out  his   hand   to   grasp   Erie.    Erie  was   to  be 


10  i;ail\\.\\    riioi'.i.K.Ms 

isnhited  and  sliut  uj)  witliin  tlii'  limits  ol"  New  York;  it  was  to 
be  «riveii  over,  liouiul  liaiul  and  IdoI,  Lo  the  lord  ol  tlie  Central. 
To  perfect  tins  pioi^rainnu',  the  representatives  of  all  the  com- 
pel intr  lines  met,  anil  a  pi'oposition  was  snbmitted  to  the  Erie 
IKirlv  lookinijf  to  a  practical  consolidation  on  certain  terms  of 
the  Pennsylvania  Central,  the  Erie,  and  the  New  York  Central, 
and  a  ilivision  among  the  contracting  [)artics  of  all  the  earnings 
from  the  New  York  City  travel.  A  new  illustration  was  thns 
to  be  afforded,  at  the  expense  of  the  trade  and  travel  to  and 
from  the  heart  of  a  continent,  of  George  Stephenson's  famous 
aphorism,  that  where  combination  is  possible  competition  is 
impossible.  The  Erie  party,  however,  represented  that  their 
road  earned  more  than  half  of  the  fund  of  which  they  were 
to  receive  only  one  third.  They  remonstrated  and  proposed 
modifications,  but  their  opponents  were  inexorable.  The  terms 
were  too  hard  ;  the  conference  led  to  no  result;  a  ruinous  com- 
petition seemed  impending  as  the  alternative  to  a  fierce  war  of 
doubtful  issue.  Both  parties  now  retired  to  their  camps,  and 
mustered  their  forces  in  preparation  for  the  first  overt  act  of 
hostility.    They  had  not  long  to  wait. 

******** 
The  first  open  hostilities  took  place  on  the  17th  of  February. 
For  some  time  Wall  Street  had  been  agitated  with  forebodings 
of  the  coming  hostilities,  but  not  until  that  day  was  recourse  had 
to  the  courts.  Vanderbilt  had  two  ends  in  view  when  he  sought 
to  avail  himself  of  the  processes  of  law.  In  the  first  place,  Drew's 
long  connection  with  Erie,  and  especially  the  unsettled  transac- 
tions arising  out  of  the  famous  corner  of  1866,  afforded  admirable 
ground  for  annoying  offensive  operations  ;  and,  in  the  second 
place,  these  very  proceedings,  by  throwing  his  opponent  on  the 
defensive,  afforded  an  excellent  cover  for  Vanderbilt's  own  trans- 
actions in  Wall  Street.  It  was  essential  to  his  success  to  corner 
Drew,  but  to  corner  Drew  at  all  was  not  easy,  and  to  corner  him 
in  Erie  was  difficult  indeed.  Very  recent  experiences,  of  which 
Vanderbilt  was  fully  informed,  no  less  than  the  memories  of 
1866,  had  fully  warned  the  public  how  manifold  and  ingen- 
ious were  the  expedients  through  which  the  coming  treasurer 


A  CHAPTER   OF  ERIE  11 

furnished  himself  with  Erie,  when  the  exigencies  of  his  position 
demanded  fresh  supplies.  It  was,  therefore,  very  necessary  for 
Vanderbilt  that  he  should,  while  buying  Erie  with  one  hand 
in  Wall  Street,  with  the  other  close,  so  far  as  he  could,  that 
apparently  inexhaustible  spring  from  which  such  generous  sup- 
plies of  new  stock  were  wont  to  flow.  Accordingly,  on  the  17th 
of  February,  Mr.  Frank  Work,  the  only  remaining  representative 
of  the  Vanderbilt  faction  in  the  Erie  direction,  accompanied  by 
Mr.  Vanderbilt's  attorneys,  Messrs.  Rapallo  and  Spenser,  made 
his  appearance  before  Judge  Barnard,  of  the  Supreme  Court  of 
New  Yoik,  then  sitting  in  chambers,  and  applied  for  an  injunc- 
tion against  Treasurer  Drew  and  his  brother  directors  of  the  Erie 
Railway,  restraining  them  from  the  payment  of  interest  or  prin- 
cipal of  the  three  and  a  half  millions  borrowed  of  the  treasurer 
in  1866,  as  well  as  from  releasing  Drew  from  any  liability  or 
cause  of  action  the  company  might  have  against  him,  pending 
an  investigation  of  his  accounts  as  treasurer  ;  on  the  other  hand, 
Drew  was  to  be  enjoined  from  taking  any  legal  steps  towards 
compelling  a  settlement.  A  temporary  injunction  was  granted 
in  accordance  with  the  petition,  and  a  further  hearing  was 
assigned  for  the  21st.  Two  days  later,  however, — on  the  19th  of 
•the  month, — without  waiting  for  the  result  of  the  first  attack, 
the  same  attorneys  appeared  again  before  Judge  Barnard,  and 
now  in  the  name  of  the  people,  acting  througli  the  Attorney- 
General,  petitioned  for  the  removal  from  office  of  Treasurer 
Drew.  The  papers  in  the  case  set  forth  some  of  the  difficulties 
which  beset  the  Commodore,  and  exposed  the  existence  of  a  new 
fountain  of  Erie  stock.  It  appeared  that  there  was  a  recently 
enacted  statute  of  New  York  which  authorized  any  railroad 
company  to  create  and  issue  its  own  stock  in  exchange  for  the 
stock  of  any  other  road  under  lease  to  it.  The  petition  then 
alleged  that  Mr.  Drew  and  certain  of  his  brother  directors,  had 
quietly  possessed  themselves  of  a  worthless  road  connecting,  with 
the  Erie,  and  called  the  Buffalo,  Bradford  &  Pittsburg  Railroad, 
and  had  then,  as  occasion  and  their  own  exigencies  required, 
proceeded  to  supply  themselves  with  whatever  Erie  stock  they 
wanted,  by  leasing  their  own  road  to  the  road  of  which  they  were 


12  KAU.WAV    rKOr.KKMS 

directiMs,  and  thon  iTt'atiiii;-  slock  and  issuiui;'  it  to  tluMnselves, 
in  exc'hiin»j^i',  untK'r  llir  authoiily  vt'sti'd  in  them  \)\  law.  The 
uneoiitrailii'toil  history  ot"  this  transaction,  as  subsequently  set 
forth  on  the  very  doubtful  authority  of  a  leading  Erie  director, 
affords,  inileed,  a  most  ha[)py  illustration  of  brilliant  railroad 
tinanciering,  whether  true  in  this  case  or  not.  The  road,  it  was 
stated,  cost  the  purchasers,  as  iinanciers,  some  $250,000  ;  as  pro- 
prietoi"s,  they  then  issued  in  its  name  bonds  for  two  million  dol- 
lars, payable  to  one  of  themselves,  who  now  figured  as  trustee. 
This  person,  then,  shifting  his  character,  drew  up,  as  counsel  for 
both  i^arties,  a  contract  leasing  this  road  to  the  Erie  Railway  for 
four  hundred  and  ninety-nine  years,  the  Erie  agreeing  to  assume 
the  bonds ;  reappearing  in  their  original  character  of  Erie  di- 
rectors, these  gentlemen  then  ratified  the  lease,  and  thereafter  it 
only  remained  for  them  to  relapse  into  the  rule  of  financiers,  and 
to  divide  the  proceeds.  All  this  was  happily  accomplished,  and 
the  Erie  Railway  lost  and  some  one  gained  -f  140,000  a  year  by 
the  barofain.  The  skillful  actors  in  this  much  shiftincr  drama 
probably  proceeded  on  the  familiar  theory  that  exchange  is  no 
robbery  ;  and  the  expedient  was  certainly  ingenious. 

It  was  not  until  the  3d  of  March,  however,  that  any  decisive 
action  was  taken  by  Judge  Barnard  on  either  of  the  petitions 
before  him.  Even  then,  that  in  the  name  of  the  Attorney-General 
was  postponed  for  final  hearing  until  the  10th  of  the  month; 
but,  on  the  application  of  Work,  an  injunction  was  issued  restrain- 
ing the  Erie  board  from  any  new  issue  of  capital  stock,  by  con- 
version of  bonds  or  otherwise,  in  addition  to  the  251,058  shares 
appearing  in  the  previous  reports  of  the  road,  and  forbidding  the 
guaranty  by  the  Erie  of  the  bonds  of  any  connecting  line  of  road. 
While  this  last  provision  of  the  order  was  calculated  to  furnish 
food  for  thought  to  the  Boston  party,  matter  for  meditation  was 
supplied  to  Mr.  Drew  by  other  clauses,  which  specially  forbade 
him,  his  agents,  attorneys,  or  brokers,  to  have  any  transactions 
in  Erie,  or  fulfill  any  of  his  contracts  already  entered  into,  until 
he  had  returned  to  the  company  sixty-eight  thousand- shares  of 
capital  stock,  alleged  to  be  the  number  involved  in  the  unsettled 


A  CHAPTER  OF  ERIE  13 

transaction  of  1866,  and  the  more  recent  Buffalo,  Bradford  & 
Pittsburg  exchange.  A  linal  hearing  was  fixed  for  the  10th  of 
March  on  both  injunctions. 

Things  certainly  did  not  now  promise  well  for  Treasurer  Drew 
and  the  bear  party.    Vanderbilt  and  the  bulls  seemed  to  arrange 
everything  to  meet  their  own  views  ;  apparently  they  had  but 
to  ask  and  it  was  granted.    If  any  virtue  existed  in  the  processes 
of  law,  if  any  authority  was  wielded  by  a  New  York  court,  it 
now  seemed  as  if  the  very  head  of  the  bear  faction  must  needs 
be  converted  into  a  bull  in  his  own  despite,  and  to  his  manifest 
ruin.    He,   in  this  hour  of  his  trial,  was  to  be  forced  by  his 
triumphant  opponent  to  make  Erie  scarce  by  returning  into  its 
treasury  sixty-eight  thousand  shares,  —  one  fourth  of  its  whole 
capital  stock  of  every  description.    So  far  from  manufacturing 
fresh  Erie  and  pouring  it  into  the  street,  he  was  to  be  cornered 
by  a  writ,  and  forced  to  work  his  own  ruin  in  obedience  to  an 
injunction.    Appearances  are,  however,  proverbially  deceptive, 
and  all  depended  on  the  assumption  that  some  virtue  did  exist 
in  the  processes  of  law,  and  that  some  authority  was  wielded  by 
a  New  York  court.    In  spite  of  the  threatening  aspect  of  his 
affairs,  it  was  very  evident  that  the  nerves  of  Mr.  Drew  and  his 
associates  were  not  seriously  affected.    Wall  Street  watched  him 
with  curiosity  not  unmingled  with  alarm  ;  for  this  was  a  con- 
flict of  Titans.    Hedged  all  around  with  orders  of  the  court,  sus- 
pended, enjoined,  and  threatened  with  all  manner  of  unheard-of 
processes,  with  Vanderbilt's  wealth  standing  like  a  lion  in  his 
path,  and  all  Wall  Street  ready  to  turn  upon  him  and  rend  him, 
—  in  presence  of  all  these  accumulated  terrors  of  the  court  room 
and  of  the  exchange,  the  Speculative  Director  was  not  less  specu- 
lative than  was  his  wont.    He  seemed  rushing  on  destruction. 
Day  after  day  he  pursued  the  same  "  short "  ^  tactics  ;  contract 
after  contract  was  put  out  for  the  future  delivery  of  stock  at 
current  prices,  and  this,  too,  in  the  face  of  a  continually  rising 
market.    Evidently  he  did  not  yet  consider  himself  at  the  end 
of  his  resources. 

1  An  operator  is  said  to  be  "  sliort  "  when  he  has  agreed  to  deliver  that  which 
he  has  not  got.    He  wagers,  in  fact,  on  a  fall. 


14  KAILWAN     I'lJOl'.l.EMS 

It  was  e(|u;\lly  evident,  liDWover,  that  ho  had  not  much  time 
to  Uxso.  It  was  now  the  <\d  of  March,  and  tlie  anticipated 
"corner"  niiqht  he  hioked  for  ahout  tlie  lOlh.  As  usual,  some 
lii^ht  skirmishini,'  took  jjhice  as  a  prelude  to  the  heavy  shock  of 
decisive  hattle.  Thi'  ICrie  party  very  freely  and  openly  expressed 
a  de^'ided  lack  of  respt'ct,  and  somethinL;' api»roaching  contempt, 
for  the  purity  of  that  j)articular  fragment  of  tlic  judicial  ermine 
which  was  sup[)osed  to  adorn  the  person  of  Mr.  Justice  liarnard. 
Tliey  did  not  pretend  to  conceal  their  conviction  that  this  mag- 
istrate was  a  piece  of  the  Vandeihilt  property,  and  they  very 
plainly  announced  their  intention  of  seeking  for  justice  elsewhere. 
With  this  end  in  view  the}'  betook  themselves  to  their  own  town 
of  liinghamton,  in  the  county  of  liroome,  where  they  duly  pre- 
sented themseh^es  before  Mr.  Justice  Kalcom,  of  the  Supreme 
Court.  The  existing  judicial  system  of  New  York  divides  the 
State  into  eight  distinct  districts,  each  of  which  has  an  inde- 
pendent Supreme  Court  of  four  judges,  elected  by  the  citizens  of 
that  district.  The  first  district  alone  enjoys  five  judges,  the 
fifth  being  the  Judge  liarnard  already  referred  to.  These  local 
judges,  however,  are  clothed  with  certain  equity  powers  in  actions 
commenced  before  them,  which  run  throughout  the  State.  As 
one  subject  of  litigation,  therefore,  might  affect  many  individuals, 
each  of  whom  might  initiate  legal  proceedings  before  any  of  the 
thirty-three  judges ;  which  judge  again  might  forbid  proceed- 
ings before  any  or  all  of  the  other  judges,  or  issue  a  stay  of  pro- 
ceedings in  suits  already  commenced,  and  then  proceed  to  make 
orders,  to  consolidate  actions,  and  to  issue  process  for  contempt, 
—  it  was  not  improbable  that,  sooner  or  later,  strange  and  dis- 
graceful conflicts  of  authority  would  arise,  and  that  the  law  would 
fall  into  contempt.  Such  a  system  can,  in  fact,  be  sustained  only 
so  long  as  coordinate  judges  use  the  delicate  powers  of  equity 
with  a  careful  regard  to  private  rights  and  the  dignity  of  the 
law,  and  therefore,  more  than  any  which  has  ever  been  devised, 
it  calls  for  a  high  average  of  learning,  dignity,  and  personal 
character  in  the  occupants  of  the  bench.  When,  therefore,  the 
ermine  of  the  judge  is  flung  into  the  kennel  of  party  politics  and 
becomes  a  part  of  the  spoils  of  political  victory;  when  by  any 


A  CHAPTER  OF  ERIE  15 

chance  partisanship,  brutality,  and  corruption  become  the  quali- 
ties which  especially  recommend  the  successful  aspirant  to  judi- 
cial honors,  then  the  system  described  will  be  found  to  furnish 
peculiar  facilities  for  the  display  of  these  characteristics. 

All  this,  however,  was  mere  skirmishing,  and  now  the  decisive 
engagement  was  near  at  hand.  The  plans  of  the  Erie  ring  were 
matured,  and,  if  Commodore  Vanderbilt  wanted  the  stock  of 
their  road,  they  were  prepared  to  let  him  have  all  he  desired. 
As  usual  the  Erie  treasury  was  at  this  time  deficient  in  funds. 
As  usual,  also,  Daniel  Drew  stood  ready  to  advance  all  the 
funds  required,  —  on  proper  security.  One  kind  of  security, 
and  only  one,  the  company  was  disposed  at  this  time  to  offer, 
—  its  convertible  bonds  under  a  pledge  of  conversion.  The 
company  could  not  issue  stock  outright,  in  any  case,  at  less 
than  par ;  its  bonds  bore  interest  and  were  useless  on  the 
street;  an  issue  of  convertible  bonds  was  another  name  for  an 
issue  of  stock  to  be  sold  at  market  rates.  The  treasurer  readily 
agreed  to  find  a  purchaser,  and,  in  fact,  he  himself  stood  just 
then  in  pressing  need  of  some  scores  of  thousands  of  shares. 
Already  at  the  meeting  of  the  Board  of  Directors,  on  the  19th 
of  February,  a  very  deceptive  account  of  the  condition  of  the 
road,  jockeyed  out  of  the  general  superintendent,  had  been  read 
and  made  public ;  the  increased  depot  facilities,  the  projected 
double  track,  and  the  everlasting  steel  rails,  had  been  made  to 
do  vigorous  duty ;  and  the  board  had,  in  the  vaguest  and  most 
general  language  conceivable,  clothed  the  Executive  Committee 
with  full  power  in  the  premises.  .  .  .  Immediately  after  the  Board 
of  Directors  adjourned  a  meeting  of  the  Executive  Committee 
was  held,  and  a  vote  to  issue  at  once  convertible  bonds  for  ten 
millions  gave  a  meaning  to  the  very  ambiguous  language  of 
the  directors'  resolve ;  and  thus,  when  apparently  on  the  very 
threshold  of  his  final  triumph,  this  mighty  mass  of  one  hundred 
thousand  shares  of  new  stock  was  hanging  like  an  avalanche 
over  the  head  of  Vanderbilt. 

The  Executive  Committee  had  voted  to  sell  the  entire  amount 
of  these  bonds  at  not  less  than  72^.    Five  millions  were  placed 


16  K  All. WAV    IMJOr.LKMS 

upon  the  niarkot  at  onco,  ami  Mr.  Drew's  brokef  became  the 
purchaser,  Mr.  Drew  i^iviug  him  a  written  <^uaranty  against 
h)ss,  and  being  enlitleil  to  any  profit.  It  was  all  done  in  ten 
minutes  after  the  committee  adjourned,  —  the  bonds  issued, 
their  conversion  into  stock  demanded  and  complied  with,  and 
certitieales  for  lifty  thousand  shares  deposited  in  the  broker's 
safe,  subject  to  the  orders  of  Daniel  Drew.  There  they  remained 
until  the  29th,  when  they  were  issued,  on  his  requisition,  to 
cert<ain  others  of  that  gentleman's  army  of  brokers,  much  as 
ammunition  might  be  issued  before  a  general  engagement. 
Three  days  later  came  the  Barnard  injunction,  and  Erie  sud- 
denly rose  in  tlie  market.  Then  it  was  determined  to  bring  up 
the  reserves  and  let  the  eager  bulls  have  the  other  five  millions. 
The  history  of  this  second  issue  was,  in  all  respects,  an  episode 
worthy  of  Erie,  and  deserves  minute  relation.  It  was  decided 
upon  on  the  3d,  but  before  the  bonds  were  converted  Barnard's 
injunction  had  been  served  on  every  one  connected  with  the 
Erie  Road  or  with  Daniel  Drew.  The  10th  was  the  return  day 
of  the  writ,  but  the  Erie  operators  needed  even  less  time  for 
their  deliberations.  Monday,  the  9th,  was  settled  upon  as  the 
day  upon  which  to  defeat  the  impending  "  corner."  The  night 
of  Saturday,  the  7th,  was  a  busy  one  in  the  Erie  camp.  While 
one  set  of  counsel  and  clerks  were  preparing  aflfidavits  and 
prayers  for  strange  writs  and  injunctions,  the  enjoined  vice 
president  of  the  road  was  busy  at  home  signing  certificates  of 
stock,  to  be  ready  for  instant  use  in  case  a  modification  of  the 
injunction  could  be  obtained,  and  another  set  of  counsel  was  in 
immediate  attendance  on  the  leaders  themselves.  Mr.  Groesbeck, 
the  chief  of  the  Drew  brokers,  being  himself  enjoined,  secured 
elsewhere,  after  one  or  two  failures,  a  purchaser  of  the  bonds, 
and  took  him  to  the  house  of  the  Erie  counsel,  where  Drew 
and  other  directors  and  brokers  then  were.  There  the  terms  of 
the  nominal  sale  were  agreed  upon,  and  a  contract  was  drawn 
up  transferring  the  bonds  to  this  man  of  straw,  who  in  return 
gave  Mr.  Drew  a  full  power  of  attorney  to  convert  or  otherwise 
dispose  of  the  bonds,  in  the  form  of  a  promissory  note  for  their 
purchase  money.    Mr.  Groesbeck,  meanwhile,  with  the  fear  of 


A  CHAPTEIl   OF   ERIE  17 

injunctions  before  his  eyes,  prudently  withdrew  into  the  next 
room,  and  amused  himself  by  looking  at  the  curiosities  and 
conversing  with  the  lawyers'  young  gentlemen.  After  the  con- 
tract was  closed,  the  purchaser  was  asked  to  sign  an  affidavit 
setting  forth  his  ownership  of  the  bonds  and  the  refusal  of  the 
corporation  to  convert  them  into  stock  in  compliance  with  their 
contract,  upon  which  affidavit  it  was  in  contemplation  to  seek 
from  some  justice  a  writ  of  mandamus  to  compel  the  Erie 
Railway  to  convert  them,  the  necessary  papers  for  such  a 
proceeding  being  then  in  course  of  preparation  elsewhere. 
This  the  purchaser  declined  to  do.  One  of  the  lawyers  present 
then  said,  "  Well,  you  can  make  the  demand  now ;  here  is  Mr. 
Drew,  the  treasurer  of  the  company,  and  Mr.  Gould,  one  of  the 
Executive  Committee."  In  accordance  with  this  suggestion  a 
demand  for  the  stock  was  then  made,  and,  of  course,  at  once 
refused ;  thereupon  the  scruples  of  the  man  of  straw  being  all 
removed,  the  desired  affidavit  was  signed.  All  business  now 
being  finished,  the  parties  separated ;  the  legal  papers  v/ere 
ready,  the  convertible  bonds  had  been  disposed  of,  and  the 
certificates  of  stock,  for  which  they  were  to  be  exchanged, 
were  signed  in  blank  and  ready  for  delivery. 

Early  Monday  morning  the  Erie  people  were  at  work.  Mr. 
Drew,  the  director  and  treasurer,  had  agreed  to  sell  on  that 
day  fifty  thousand  shares  of  the  stock,  at  80,  to  the  firms  of 
which  Mr.  Fisk  and  Mr.  Gould  were  members,  these  gentlemen 
also  being  Erie  directors  and  members  of  the  Executive  Com- 
mittee. The  new  certificates,  made  out  in  the  names  of  these 
firms  on  Saturday  night,  were  in  the  hands  of  the  secretary  of 
the  company,  who  was  strictly  enjoined  from  allowing  their 
issue.  On  Monday  morning  this  official  directed  an  employee 
of  the  road  to  carry  these  books  of  certificates  from  the  West 
Street  office  of  the  company  to  the  transfer  clerk  in  Pine  Street, 
and  there  to  deliver  them  carefully.  The  messenger  left  tlie 
room,  but  immediately  returned  empty-handed,  and  informed 
the  astonished  secretary  that  Mr.  Fisk  had  met  him  outside 
the  door,  taken  from  him  the  books  of  unissued  certificates, 
and  "  run  away  with  them."    It  was  true  ;  —  one  essential  step 


18  l^UI,\\AV    IMIor.LKMS 

towards  ('(inversion  liad  Ixmmi  lakfii  ;  the  ccrtilicates  of  stock 
wiMv  Ik'N'ontl  till'  control  of  an  injinirtion.  During  tlie  after- 
noon ol"  tlu-  sanu'  day  the  ron\crtil»U'  bonds  were  found  upon 
the  secretary's  desk,  whore  tiiey  had  been  phiced  by  Mr.  Bidden, 
the  partner  in  business  of  Director  James  Fisk,  Jr.;  the  cer- 
tilicates  were  next  seen  in  Broad  Street. 

Before  hiunching  the  bolt  thus  provided,  the  conspirators 
had  considered  it  not  unadvisable  to  cover  their  proceedings,  if 
they  coukl,  with  some  form  of  kiw.  This  probably  was  looked 
upon  as  an  idle  ceremony,  but  it  could  do  no  harm ;  and  per- 
haps their  next  step  was  dictated  by  what  has  been  called  "  a 
decent  respect  for  the  opinions  of  mankind,"  combined  with 
a  profound  contempt  for  judges  and  courts  of  law. 

Early  on  the  morning  of  the  9th  Judge  Gilbert,  a  highly 
respected  magistrate  of  the  Second  Judicial  District,  residing 
in  Brooklyn,  was  waited  upon  by  one  of  the  Erie  counsel,  who 
desired  to  initiate  before  him  a  new  suit  in  the  Erie  litigation, 
—  this  time,  in  the  name  of  the  Saturday  evening  purchaser  of 
bonds  and  maker  of  affidavits.  A  writ  of  mandamus  was  asked 
for.  This  writ  clearly  did  not  lie  in  such  a  case  ;  the  magistrate 
very  properly  declined  to  grant  it,  and  the  only  wonder  is  that 
counsel  should  have  applied  for  it.  New  counsel  were  then 
hurriedly  summoned,  and  a  new  petition,  in  a  fresh  name,  was 
presented.  This  petition  was  for  an  injunction,  in  the  name  of 
Belden,  the  partner  of  Mr.  Fisk,  and  the  documents  then  and 
there  presented  were  probably  as  eloquent  an  exposure  as  could 
possibly  have  been  penned  of  the  lamentable  condition  into 
which  the  once  honored  judiciary  of  New  York  had  fallen. 
The  petition  alleged  that  some  time  in  February  certain  per- 
sons, among  whom  was  especially  named  George  G.  Barnard,  — 
the  justice  of  the  Supreme  Court  of  the  First  District,  —  had 
entered  into  a  combination  to  speculate  in  the  stock  of  the 
Erie  Railway,  and  to  use  the  process  of  the  courts  for  the  pur- 
pose of  aiding  their  speculation;  "and  that,  in  furtherance  of 
the  plans  of  this  combination,"  the  actions  in  Work's  name 
had  been  commenced  before  Barnard,  who,  the  counsel  asserted, 
was  then  issuing  injunctions  at  the  rate  of  half  a  dozen  a  day. 


A   CHAPTER   OF   ERIE  19 

It  is  impossible  b}^  any  criticism  to  do  justice  to  such  audacity 
as  this :  the  dumb  silence  of  amazement  is  the  only  iitting  com- 
mentary. Apparently,  however,  nothing  that  could  be  stated 
of  his  colleague  across  the  river  exceeded  the  belief  of  Judge 
Gilbert,  for,  after  some  trifling  delays  and  a  few  objections  on 
the  part  of  the  judge  to  the  form  of  the  desired  order,  the  Erie 
counsel  hurried  away,  and  returned  to  New  York  with  a  new 
injunction,  restraining  all  the  parties  to  all  the  other  suits  from 
further  proceedings,  and  from  doing  any  acts  in  "  furtherance 
of  said  conspiracy "  ;  —  in  one  paragraph  ordering  the  Erie 
directors,  except  Work,  to  continue  in  the  discharge  of  their 
duties,  in  direct  defiance  of  the  injunction  of  one  judge,  and  in 
the  next,  with  an  equal  disregard  of  another  judge,  forbidding 
the  directors  to  desist  from  converting  bonds  into  stock.  Judge 
Gilbert  having,  a  few  hours  before  signing  this  wonderful  order, 
refused  to  issue  a  writ  of  mandamus,  it  may  be  proper  to  add 
that  the  process  of  equity  here  resorted  to,  compelling  the 
performance  of  various  acts,  is  of  recent  invention,  and  is 
known  as  a  "  mandatory  injunction." 

All  was  now  ready.  The  Drew  party  were  enjoined  in  every 
direction.  One  magistrate  had  forbidden  them  to  move,  and 
another  magistrate  had  ordered  them  not  to  stand  still.  If  the 
Erie  board  held  meetings  and  transacted  business,  it  violated 
one  injunction  ;  if  it  abstained  from  doing  so,  it  violated  another. 
By  the  further  conversion  of  bonds  into  stock  pains  and  penalties 
would  be  incurred  at  the  hands  of  Judge  Barnard ;  the  refusal 
to  convert  would  be  an  act  of  disobedience  to  Judge  Gilbert. 
Strategically  considered,  the  position  could  not  be  improved, 
and  Mr.  Drew  and  his  friends  were  not  the  men  to  let  the  golden 
moment  escape  them.  At  once,  before  a  new  injunction  could 
be  obtained,  even  in  New  York,  fifty  thousand  shares  of  new 
Erie  stock  were  flung  upon  the  market.  That  day  Erie  was 
buoyant,  —  Vanderbilt  was  purchasing.  His  agents  caught  at 
the  new  stock  as  eagerly  as  at  the  old,  and  the  whole  of  it  was 
absorbed  before  its  origin  was  suspected,  and  almost  witliout  a 
falter  in  the  price.  Then  the  fresh  certificates  appeared,  and 
the  truth  became  known.    Erie  had  that  day  opened  at  80  and 


20  i;aii.\\a\    iMior.LKMs 

risen  rapuUy  to  83,  while  its  rise  even  to  par  was  predicted  ; 
suilili'idy  it  falteivd,  fell  otT,  and  then  droppeil  suddenly  to  71. 
Wall  Street  liad  never  been  snbjeeteil  to  a  greater  shock,  and 
the  market  reeled  to  and  fro  like  a  drunken  man  between  these 
giants,  as  they  hurled  al)out  shares  by  the  tens  of  thousands, 
and  money  by  the  million.  When  night  put  an  end  to  the  con- 
iliet,  Va-\c  stood  at  78,  the  shock  of  battle  was  over,  and  the 
astonished  brokers  drew  breath  as  they  waited  for  the  events 
of  tlie  morrow.  The  attempted  "  corner "  was  a  failure,  and 
Drew  was  victorious,  —  no  doubt  existed  on  that  point.  The 
question  now  was,  could  Vanderbilt  sustain  himself?  In  spite 
of  all  his  wealth,  must  he  not  go  down  before  his  cunning 
op{)onent  ? 

The  morning  of  the  11th  found  the  Erie  leaders  still  trans- 
acting business  at  the  office  of  the  corporation  in  West  Street. 
It  would  seem  that  these  gentlemen,  in  spite  of  the  glaring 
contempt  for  the  procfess  of  the  courts  of  which  they  had  been 
guilty,  had  made  no  arrangements  for  an  orderly  retreat  beyond 
the  jurisdiction  of  the  tribunals  they  had  set  at  defiance.  They 
were  speedily  roused  from  their  real  or  affected  tranquillity  by 
trustworthy  intelligence  that  processes  for  contempt  were  already 
issued  against  them,  and  that  their  only  chance  of  escape  from 
incarceration  lay  in  precipitate  flight.  At  ten  o'clock  the  aston- 
ished police  saw  a  throng  of  panic-stricken  railway  directors,  — 
looking  more  like  a  frightened  gang  of  thieves,  disturbed  in  the 
division  of  their  plunder,  than  like  the  wealthy  representatives 
of  a  great  corporation,  —  rush  headlong  from  the  doors  of  the 
Erie  office,  and  dash  off  in  the  direction  of  the  Jersey  ferry.  In 
their  hands  were  packages  and  files  of  papers,  and  their  pockets 
were  crammed  with  assets  and  securities.  One  individual  bore 
away  with  him  in  a  hackney  coach  bales  containing  six  millions 
of  dollars  in  greenbacks.  Other  members  of  the  board  followed 
under  cover  of  the  night;  some  of  them,  not  daring  to  expose 
themselves  to  the  publicity  of  a  ferry,  attempted  to  cross  in 
open  boats  concealed  by  the  darkness  and  a  March  fog.  Two 
directors,  who  lingered,  were  arrested;  but  a  majority  of  the 
Executive  Committee  collected  at  the  Erie  Station  in  Jersey 


A  CHAPTER   OF   EEIE  21 

City,  and  there,  free  from  any  apprehension  of  Judge  Barnard's 
pursuing  wrath,  proceeded  to  the  transaction  of  business. 

Meanwhile,  on  the  other  side  of  the  river,  Vanderbilt  was 
struggling  in  the  toils.  As  usual  in  these  Wall  Street  opera- 
tions, there  was  a  grim  humor  in  the  situation.  Had  Vanderbilt 
failed  to  sustain  the  market,  a  financial  collapse  and  panic  must 
have  ensued  which  would  have  sent  him  to  the  wall.  He  had 
sustained  it,  and  had  absorbed  a  hundred  thousand  shares  of 
Erie.  Thus  when  Drew  retired  to  Jersey  City  he  carried  with 
him  seven  millions  of  his  opponent's  money,  and  the  Commodore 
had  freely  supplied  the  enemy  with  the  sinews  of  war.  He  had 
grasped  at  Erie  for  his  own  sake,  and  now  his  opponents  deri- 
sively promised  to  rehabilitate  and  vivify  the  old  road  with  the 
money  he  had  furnished  them,  so  as  more  effectually  to  com- 
pete with  the  lines  which  he  already  possessed.  Nor  was  this 
all.  Had  they  done  as  they  loudly  claimed  they  meant  to  do, 
Vanderbilt  might  have  hugged  himself  in  the  faitli  that,  after 
all,  it  was  but  a  question  of  time,  and  the  prize  would  come  to 
him  in  the  end.  He,  however,  knew  well  enough  that  the  most 
pressing  need  of  the  Erie  people  was  money  with  which  to  fight 
him.  With  this  he  had  now  furnished  them  abundantly,  and  he 
must  have  felt  that  no  scruples  would  prevent  their  use  of  it. 

Vanderbilt  had,  however,  little  leisure  to  devote  to  the  enjoy- 
ment of  the  humorous  side  of  his  position.  The  situation  was 
alarming.  His  opponents  had  carried  with  them  in  their  flight 
seven  millions  in  currency,  which  were  withdrawn  from  circula- 
tion. An  artificial  stringency  was  thus  created  in  Wall  Street, 
and,  while  money  rose,  stocks  fell,  and  unusual  margins  were 
called  in.  Vanderbilt  was  carrying  a  fearful  load,  and  the  least 
want  of  confidence,  the  faintest  sign  of  faltering,  might  well 
bring  on  a  crash.  He  already  had  a  hundred  thousand  shares 
of  Erie,  not  one  of  which  he  could  sell.  He  was  liable  at  any 
time  to  be  called  upon  to  carry  as  much  more  as  his  opponents, 
skilled  by  long  practice  in  the  manufacture  of  the  article,  might 
see  fit  to  produce.  Opposed  to  him  were  men  who  scrupled  at 
nothing,  and  who  knew  every  in  and  out  of  the  money  market. 
With  every  look   and  every  gesture   anxiously  scrutinized,  a 


22  KAILW.W     I'KUIU.KM.S 

position  more  tryinix  tliaii  his  can  liaidly  be  conceived.  It  is 
not  known  tvoni  what  source  he  drew  the  vast  snins  wiiich 
enaltleil  him  to  suniiouiil  his  (liftienllies  witii  sueh  apparent 
ease.  His  nerve,  however,  stooil  him  in  at  least  as  [i^ood  stead 
as  his  tinani'ial  resonn-es.  Ivike  a  great  general,  in  the  hour  of 
trial  he  inspired  eonlidenee.  While  fighting  for  life  he  could 
'•  talk  horse "  and  [tlay  whist.  The  manner  in  which  he  then 
emergeil  from  his  troubles,  serene  and  confident,  w^as  as  extraor- 
dinary as  the  financial  ivsources  he  commanded. 

Meanwhile,  before  turning  to  the  tide  of  battle,  which  now 
swept  away  from  the  courts  of  hiw  into  the  lialls  of  legislation, 
there  are  tw'o  matters  to  be  disposed  of ;  the  division  of  the 
spoils  is  to  be  recounted,  and  the  old  and  useless  Ivnnber  of 
conflict  must  be  cleared  aw^ay.  The  division  of  profits  accruing 
to  Mr.  Treasurer  Drew  and  his  associate  directors,  acting  as 
individuals,  was  a  fit  conclusion  to  the  stock  issue  just  described. 
The  bonds  for  five  nfiUions,  after  their  conversion,  realized  nearly 
four  millions  of  dollars,  of  which  $3,625,000  passed  into  the 
treasury  of  the  company.  The  trustees  of  the  stockholders  had 
therefore  in  this  case  secured  a  profit  for  some  one  of  f'STSjOOO. 
Confidence  in  the  good  faith  of  one's  kind  is  very  commendable, 
but  possession  is  nine  points  of  the  law.  Mr.  James  Fisk,  Jr., 
through  whom  the  sales  were  mainly  effected,  declined  to  make 
any  payments  in  excess  of  the  $3,625,000,  until  a  division  of 
profits  was  agreed  upon.  It  seems  that,  by  virtue  of  a  paper 
signed  by  Mr.  Drew  as  early  as  the  19th  of  February,  Gould, 
Fisk,  and  others  were  entitled  to  one  half  the  profits  he  should 
make  "  in  certain  transactions."  What  these  transactions  were, 
or  whether  the  official  action  of  Directors  Gould  and  Fisk  was 
in  any  way  influenced  by  the  signing  of  this  document,  does 
not  appear.  Mr.  Fisk  now  gave  Mr.  Drew,  in  lieu  of  cash,  his 
uncertified  check  for  the  surplus  !|375,000  remaining  from  this 
transaction,  with  stock  as  collateral  amounting  to  about  the 
half  of  that  sum.  With  this  settlement,  and  the  redemption  of 
the  collateral,  Mr.  Drew  was  fain  to  be  content.  Seven  months 
afterwards  he  still  retained  possession  of  the  uncertified  check, 
in  the  payment  of  which,  if  presented,  he  seemed  to  entertain 


A   CHAPTER   OF  ERIE  23 

no  great  confidence.  Everything,  liowever,  sliowed  conclusively 
the  advantage  of  operating  from  interior  lines.  While  the  Erie 
treasury  was  once  more  replete,  three  of  the  persons  who  had 
been  mainly  instrumental  in  filling  it  had  not  suffered  in  the 
transaction.  The  treasurer  was  richer  by  $180,000  directly,  and 
he  himself  only  knew  by  how  much  more  incidentally.  In  like 
manner  his  faithful  adjutants  had  profited  to  an  amount  as 
much  exceeding  -$60,000  each  as  their  sagacity  had  led  them  to 

provide  for. 

«  *  *  *  *  *  *•* 

When  the  Vanderbilt  counsel  moved  to  fix  a  day  on  which 
their  opponents  should  show  cause  why  a  receiver  of  the  pro- 
ceeds of  the  last  overissue  of  stock  should  not  be  appointed, 
the  judge  astonished  the  petitioners  by  outstripping  their  eager- 
ness, and  appointing  Vanderbilt's  own  son-in-law  receiver  on 
the  spot.  Then  followed  a  fierce  altercation  in  court,  in  which 
bench  and  bar  took  equal  part,  and  which  closed  with  the  not 
unusual  threat  of  impeaching  the  presiding  judge.  .  .  .  When 
Mr.  John  B.  Haskin  was  placed  upon  the  stand,  there  ensued  a 
scene  which  Barnard  himself  not  inaptly  characterized  the  next 
day  as  "  outrageous  and  scandalous,  and  insulting  to  the  court." 
Upon  this  occasion  the  late  Mr.  James  T.  Brady  seemed  to  be 
on  the  verge  of  a  personal  collision  with  the  witness  in  open 
court ;  the  purity  of  the  presiding  magistrate  was  impugned, 
his  venality  openly  implied  through  a  long  cross-examination, 
and  the  witness  acknowledged  that  he  had  himself  in  the  course 
of  his  career  undertaken  for  money  to  influence  the  mind  of  the 
judge  privately  "  on  the  side  of  right."  All  the  scandals  of  the 
practice  of  the  law,  and  the  private  immoralities  of  lawj^ers, 
were  dragged  into  the  broad  light  of  day  ;  the  whole  system  of 
favored  counsel,  of  private  argument,  of  referees,  and  of  unblush- 
ing extortion,  was  freely  discussed.  .  .  .  On  a  subsequent  day 
the  judge  himself  made  inquiries  as  to  a  visit  of  two  of  the 
directors  to  one  gentleman  supposed  to  have  peculiar  influence 
over  the  judicial  mind,  and  evinced  great  familiarity  with  the 
negotiations  then  carried  on,  and  even  showed  some  disposition 
to  extend  the  inquiry  indefinitely  into  periodical  literature.  .  .  . 


24  KAII.WAN'    I'KOI'.LKMS 

Niir  were  the  lawyers  in  any  way  behind  the  judge.  At  one 
moment  they  would  indulge  in  personal  wrangling,  and  aeeuse 
eaeh  other  of  the  grossest  malpraetiee,  and  the  next,  favor  each 
other  with  remarks  u})on  manners,  more  ^jointed  than  delicate. 
All  this  time  injunctions  were  Hying  about  like  hailstones;  but 
the  crowning  injunction  of  all  was  issued,  in  reference  to  the 
appointment  of  a  receiver,  by  Judge  Gierke,  a  colleague  of 
Judge  Barnard,  at  the  time  sitting  as  a  member  of  the  Court 
of  Appeals  at  Albany.  The  Gilbert  injunction  had  gone,  it 
might  have  seemed,  sufficiently  far,  in  enjoining  Barnard  the 
individual,  while  distinctly  disavowing  all  reference  to  him  in 
his  judicial  functions.  Judge  Gierke  made  no  such  exception. 
He  enjoined  the  individual  and  he  enjoined  the  judge  ;  he  for- 
bade his  making  any  order  appointing  a  receiver,  and  he  for- 
bade the  clerks  of  his  court  from  entering  it  if  it  were  made, 
and  the  receiver  from  accepting  it  if  it  were  entered.  The 
signing  of  this  extraordinary  order  by  any  judge  in  his  senses 
admits  of  no  explanation.  The  Erie  counsel  served  it  upon 
Judge  Barnard  as  he  sat  upon  the  bench,  and,  having  done  so, 
withdrew  from  the  court  room  ;  whereupon  the  judge  immedi- 
ately proceeded  to  vacate  the  order,  and  to  appoint  a  receiver. 
This  appointment  was  then  entered  by  a  clerk,  who  had  also 
been  enjoined,  and  the  receiver  was  himself  enjoined  as  soon  as 
he  could  be  caught.  Finally  the  maze  had  become  so  intricate, 
and  the  whole  litigation  so  evidently  endless  and  aimless,  that 
by  a  sort  of  agreement  of  parties,  Judge  Ingraham,  another 
colleague  of  Judge  Barnard,  issued  a  final  injunction  of  uni- 
versal application,  as  it  were,  and  to  be  held  inviolable  by  com- 
mon consent,  under  which  proceedings  were  stayed,  pending  an 
appeal.  It  was  high  time.  Judges  were  becoming  very  shy  of 
anything  connected  with  the  name  of  Erie,  and  Judge  McCunn 
had,  in  a  lofty  tone,  informed  counsel  that  he  preferred  to  sub- 
ject himself  to  the  liability  of  a  fine  of  a  thousand  dollars  rather 
than,  by  issuing  a  writ  of  habeas  eor2m^,  allow  his  court  "  to 
have  anything  to  do  with  the  scandal." 

The  result  of  this  extraordinary  litigation  may  be  summed 
up  in  a  few  words.    It  had  two  branches ;  one,  the  appointment 


A  CHAPTER   OF  ERIE  25 

of  a  receiver  of  the  proceeds  of  the  hundred  thousand  shares 
of  stock  issued  in  viokition  of  an  injunction ;  the  other,  the 
processes  against  the  persons  of  the  directors  for  a  contempt 
of  court.  As  for  the  receiver,  every  dollar  of  the  money  this 
officer  was  intended  to  receive  was  well  known  to  be  in  New 
Jersey,  beyond  his  reach.  Why  one  party  cared  to  insist  on 
the  appointment,  or  why  the  other  party  objected  to  it,  is  not 
very  apparent.  Mr.  Osgood,  the  son-in-law  of  Vanderbilt,  was 
appointed,  and  immediately  enjoined  from  acting  ;  subsequently 
he  resigned,  when  Mr.  Peter  B.  Sweeney,  the  head  of  the  Tam- 
many ring,  was  appointed  in  his  place,  without  notice  to  the 
other  side.  Of  course  he  had  nothing  to  do,  as  there  was 
nothing  to  be  done,  and  so  he  was  subsequently  allowed  by 
Judge  Barnard  8150,000  for  his  services.  The  contempt  cases 
had  even  less  result  than  that  of  the  receivership.  The  settle- 
ment subsequently  effected  between  the  litigants  seemed  also 
to  include  the  courts.  The  outraged  majesty  of  the  law,  as  rep- 
resented in  the  person  of  Mr.  Justice  Barnard,  was  pacified, 
and  everything  was  explained  as  having  been  said  and  done  in  a 
"  Pickwickian  sense";  so  that,  when  the  terms  of  peace  had  been 
arranged  between  the  high  contending  parties,  Barnard's  roaring 
by  degrees  subsided,  until  he  roared  as  gently  as  any  sucking 
dove,  and  finally  he  ceased  to  roar  at  all.  The  penalty  for  violat- 
ing an  injunction  in  the  manner  described  was  fixed  at  the  not 
unreasonable  sum  of  ten  dollars,  except  in  the  cases  of  Mr. 
Drew  and  certain  of  his  more  prominent  associates ;  their  con- 
tumacy His  Honor  held  too  gross  to  be  estimated  in  money, 
and  so  they  escaped  without  any  punishment  at  all.  Probably 
being  as  well  read  a  lawyer  as  he  was  a  dignified  magistrate, 
Judge  Barnard  bore  in  mind,  in  imposing  these  penalties,  that 
clause  of  the  fundamental  law  which  provides  that  ''  no  exces- 
sive fines  shall  be  imposed,  or  cruel  or  unusual  punishments 
inflicted."  The  legal  profession  alone  had  cause  to  regret  the 
cessation  of  this  litigation  ;  and,  as  the  Erie  counsel  had 
■1150,000  divided  among  them  in  fees,  it  may  be  presumed  that 
even  they  were  finally  comforted.  And  all  this  took  place  in 
the  court  of  that  State   over  which  the  immortal  Chancellor 


2(;  KAii.w  .\^    riv'or.ijiMs 

Kent  had  oiii'e  j)ivsuK'cl.  Ills  s^reat  authority  was  still  cited 
there,  the  hah>  whieh  sunoiuuls  his  name  still  shed  a  glory 
over  the  bench  on  whitli  he  had  sat,  and  yet  these,  his  imme- 
diate successors,  could 

On  tliat  liigli  niouni.ain  cease  to  feed, 
And  batten  on  this  moor. 


II 

It  is  now  necessary  to  return  to  the  real  field  of  operations, 
wliich  had  ceased  on  the  morning  of  the  11th  of  March  to  be 
in  the  courts  of  law.  As  the  arena  widened  the  proceedings 
became  more  complicated  and  more  difficult  to  trace,  embracing 
as  they  did  the  legislatures  of  two  States,  neither  of  them  famed 
for  purity.  In  the  first  shock  of  the  catastrophe  it  was  actually 
believed  that  Commodore  Vanderbilt  contemplated  a  resort  to 
open  violence  and  acts  of  private  war.  There  were  intimations 
that  a  scheme  had  been  matured  for  kidnapping  certain  of  the 
Erie  directors,  including  Mr.  Drew,  and  bringing  them  by  force 
within  reach  of  Judge  Barnard's  process.  It  appeared  that  on 
the  16th  of  March  some  fifty  individuals,  subsequently  described, 
in  an  affidavit  filed  for  the  special  benefit  of  Mr.  Justice  Baniard, 
as  "  disorderly  characters,  commonly  known  as  roughs,"  crossed 
by  the  Pavonia  Ferry  and  took  possession  of  the  Erie  depot. 
From  their  conversation  and  inquiries  it  was  divined  that  they 
came  intending  to  "  co[)p  "  Mr.  Drew,  or,  in  plainer  phraseology, 
to  take  him  by  force  to  New  York ;  and  that  they  expected  to 
receive  the  sum  of  $50,000  as  a  reward  for  so  doing.  The  exiles 
at  once  loudly  charged  Vanderbilt  himself  with  originating  this 
blundering  scheme.  They  simulated  intense  alarm.  From  day 
to  day  new  panics  were  started,  until,  on  the  19th,  Drew  was 
secreted,  a  standing  army  was  organized  from  the  employees  of 
the  road,  and  a  small  navy  equipped.  The  alarm  spread  through 
Jersey  City  ;  the  militia  was  held  in  readiness ;  in  the  evening 
the  stores  were  closed  and  the  citizens  began  to  arm ;  while  a 
garrison  of  about  one  hundred  and  twenty-five  men  intrenched 
themselves  around  the  directors,  in  their  hotel.    On  the  21st 


A  CHAPTER   OF  ERIE  27 

there  was  another  alarm,  and  the  fears  of  an  attack  continued, 
with  lengthening  intervals  of  quiet,  until  the  31st,  when  the 
guard  was  at  last  withdrawn.  It  is  impossible  to  suppose  that 
Vanderbilt  ever  had  any  knowledge  of  this  ridiculous  episode 
or  of  its  cause,  except  through  the  press.  A  band  of  ruffians 
may  have  crossed  the  ferry,  intending  to  kidnap  Drew  on  spec- 
ulation ;  but  to  suppose  that  the  shrewd  and  energetic  Commo- 
dore ever  sent  them  to  go  gaping  about  a  station,  ignorant  both 
of  the  person  and  the  whereabouts  of  him  they  sought  would 
be  to  impute  to  Vanderbilt  at  once  a  crime  and  a  blunder.  Such 
botching  bears  no  trace  of  his  clean  handiwork. 

The  first  serious  effort  of  the  Erie  party  was  to  intrench  itself 
in  New  Jersey  ;  and  here  it  met  with  no  opposition.  A  bill 
making  the  Erie  Railway  Company  a  corporation  of  New  Jersey, 
with  the  same  powers  they  enjoyed  in  New  York,  was  hurried 
through  the  legislature  in  the  space  of  two  hours,  and,  after  a 
little  delay,  signed  by  the  Governor.  The  astonished  citizens 
of  the  latter  State  saw  their  famous  broad-gauge  road  thus  meta- 
morphosed before  their  eyes  into  a  denizen  of  the  kingdom  of 
Camden  and  Amboy.  Here  was  another  dreadful  hint  to  Wall 
Street.  What  further  issues  of  stock  might  become  legal  under 
this  charter,  how  the  tenure  of'  the  present  Board  of  Directors 
might  be  altered,  what  curious  legal  complications  might  arise, 
were  questions  more  easily  put  than  satisfactorily  answered. 
The  region  of  possibilities  was  considerably  extended.  The  new 
act  of  incorporation,  however,  was  but  a  precaution  to  secure 
for  the  directors  of  the  Erie  a  retreat  in  case  of  need ;  the  real 
field  of  conflict  lay  in  the  legislature  of  New  York,  and  here 
Vanderbilt  was  first  on  the  ground. 

^  ^  ^  ^  .^.  ^  ^  ^ 

One  favorite  method  of  procedure  at  Albany  is  through  the 
appointment  of  committees  to  investigate  the  affairs  of  wealthy 
corporations.  The  stock  of  some  great  company  is  manipulated 
till  it  fluctuates  violently,  as  was  the  case  with  Pacific  Mail 
in  1867.  Forthwith  some  member  of  the  Assembly  rises  and 
calls  for  a  committee  of  investigation.  The  instant  the  game 
is  afoot,  a  rush  is  made  for  positions  on  the  committee.     The 


28  1:A1L^VA^•  ruor.LKMS 

proposer,  of  course,  is  a  meniber,  probiihly  chairman.  The  advan- 
Uii^es  of  the  position  are  obvious.  'IMie  conimittee  constitutes  a 
little  temporary  outside  rin^^.  11"  a  member  is  corrupt,  he  has 
substantial  advantai*'es  otTered  him  to  inlluence  his  action  in 
regard  to  the  report.  If  he  is  not  open  to  bribery,  he  is  never- 
theless in  possession  of  very  valuable  information,  and  an  inno- 
cent little  remark,  casually  let  fall,  may  lead  a  son,  a  brother, 
or  a  loving  cousin  to  make  very  judicious  purchases  of  stock. 
Altogether,  the  position  is  one  not  to  be  avoided. 

The  investigation  phase  was  the  first  which  the  Erie  struggle 
assumed  at  Albany.  During  the  early  stages  of  the  conflict  the 
legislature  had  scented  the  carnage  from  afar.  There  was 
"money  in  it,"  and  the  struggle  was  watched  with  breathless 
interest.  As  early  as  the  5th  of  March  the  subject  had  been 
introduced  into  the  State  Senate,  and  an  investigation  into  the 
circumstances  of  the  company  was  called  for.  A  committee  of 
three  was  ordered,  but  the  next  day  a  senator,  by  name  Mattoon, 
moved  to  increase  the  number  to  five,  which  was  done,  he  him- 
self being  naturally  one  of  the  additional  members.  This  com- 
mittee had  its  first  sitting  on  the  10th,  at  the  very  crisis  of  the 
great  explosion.  But  before  the  investigation  was  entered  upon, 
Mr.  Mattoon  thought  it  expedient  to  convince  the  contending 
parties  of  his  own  perfect  impartiality  and  firm  determination 
to  hold  in  check  the  corrupt  impulses  of  his  associates.  With 
this  end  in  view,  upon  the  9th  or  the  lOtli  he  hurried  down  to 
New  York,  and  visited  West  Street,  where  he  had  an  interview 
with  the  leading  Erie  directors.  He  explained  to  them  the  cor- 
rupt motives  which  had  led  to  the  appointment  of  the  committee, 
and  how  his  sole  object  in  obtaining  an  increase  of  tlie  number 
had  been  to  put  himself  in  a  position  in  which  he  might  be  able 
to  prevent  these  evil  practices  and  see  fair  play.  Curiously 
enough,  at  the  same  interview  he  mentioned  that  his  son  was  to 
be  appointed  an  assistant  sergeant-at-arms  to  aid  in  the  investi- 
gation, and  proved  his  disinterestedness  by  mentioning  the  fact 
that  this  son  was  to  serve  without  pay.  The  labors  of  the  com- 
mittee continued  until  the  81st  of  March,  and  during  that  time 
Mr.  Mattoon,  and  at  least  one  other  senator,  pursued  a  course 


A  CHAPTEil   OF  EKIE  29 

of  private  inquiry  which  involved  further  visits  to  Jersey  City. 
Naturally  enough,  Mr.  Drew  and  his  associates  took  it  into 
their  heads  that  the  man  wanted  to  be  bought,  and  even  affirmed 
subsequently  that,  at  one  interview,  he  had  in  pretty  broad  terms 
offered  himself  for  sale.  It  has  not  been  distinctly  stated  in 
evidence  by  any  one  that  an  attempt  was  made  on  his  purity  or 
on  that  of  his  public-spirited  son ;  and  it  is  difficult  to  believe 
that  one  who  came  to  New  York  so  full  of  high  purpose  could 
have  been  sufficiently  corrupted  by  metropolitan  influences  to 
receive  bribes  from  both  sides.  Whether  he  did  so  or  not 
his  proceedings  were  terribly  suggestive  as  regards  legislative 
morality  at  Albany.  Here  was  a  senator,  a  member  of  a  com- 
mittee of  investigation,  rousing  gamblers  from  their  beds  at 
early  hours  of  the  morning  to  hold  interviews  in  the  faro-bank 
parlor  of  the  establishment,  and  to  give  "  points  "  on  which  to 
operate  upon  the  joint  account.  Even  then  the  wretched  creature 
could  not  even  keep  faith  with  his  very  "pals";  he  wrote  to 
them  to  "  go  it  heavy  "  for  Drew,  and  then  himself  went  over  to 
Vanderbilt, — he  made  agreements  to  share  profits  and  then  sub- 
mitted to  exposure  sooner  than  meet  his  part  of  the  loss.  A 
man  more  thoroughly,  shamefacedly  contemptible  and  corrupt,  — 
a  more  perfect  specimen  of  a  legislator  on  sale  haggling  for  his 
own  price,  could  not  well  exist.  In  this  case  he  cheated  every 
one,  including  himself.  Accident  threw  great  opportunities  in 
his  way.  On  the  31st  the  draft  of  a  proposed  report,  exonerat- 
ing in  great  measure  the  Drew  faction,  was  read  to  him  by  an 
associate,  to  which  he  not  only  made  no  objection,  but  was  even 
understood  to  assent.  On  the  same  day  another  report  was  read 
in  his  presence,  strongly  denouncing  the  Drew  faction,  sustain- 
ing to  the  fullest  extent  the  charges  made  against  it,  and  charac- 
terizing its  conduct  as  corrupt  and  disgraceful.  Each  report 
was  signed  by  two  of  his  associates,  and  Mr.  Mattoon  found 
himself  in  the  position  of  holding  the  balance  of  power  ;  which- 
ever report  he  signed  would  be  the  report  of  the  committee.  He 
expressed  a  desire  to  think  the  matter  over.  It  is  natural  to 
suppose  that,  in  his  eagerness  to  gain  information  privately,  Mr. 
Mattoon  had  not  confined  his  unofficial  visits  to  the  Drew  camp. 


30  i;ail\\a\    I'ljor.i.i'LMS 

111  ;iny  ease  his  iiiiiul  was  in  a  state  of  painful  suspense.  Finally, 
after  arraii^inuf  in  eonsullation  on  Tuesday  for  a  report  favor- 
ing the  Drew  {nirty,  on  Wednesday  he  signed  a  report  strongly 
denouncing  it,  and  by  doing  so  settled  the  action  of  the  com- 
mittee. Mr.  Jay  Gould  must  have  been  acquainted  with  the 
circumstances  of  the  case,  and  evidently  supposed  that  Mr. 
Mattoon  was  "  iixed,"  since  he  subsequently  declared  he  was 
"  astounded "'  when  he  heard  that  Mr.  Mattoon  had  signed  this 
report.  The  committee,  however,  with  their  patriotic  sergeant- 
at-arms,  whose  services,  by  the  way,  cost  the  State  but  a  liun- 
dred  dollars,  desisted  at  length  from  their  labors,  the  result  of 
which  was  one  more  point  gained  by  Commodore  Vanderbilt. 

Indeed,  Vanderbilt  had  thus  far  as  much  outgeneraled  Drew 
in  the  manufacture  of  public  opinion  as  Drew  had  outgeneraled 
Vanderbilt  in  the  manufacture  of  Erie  stock.  His  whole  scheme 
was  one  of  monopoly,  which  was  opposed  to  every  interest  of 
the  city  and  State  of  New  York  ;  yet  into  the  support  of  this 
scheme  he  had  brought  all  the  leading  papers  of  New  York  City, 
with  a  single  exception.  Now  again  he  seemed  to  have  it  all 
his  own  way  in  the  legislature,  and  the  tide  ran  strongly  against 
the  exiles  of  Erie.  The  report  of  the  investigation  committee 
was  signed  on  April  1st,  and  may  be  considered  as  marking  the 
high-water  point  of  Vanderbilt's  success.  Hitherto  the  Albany 
interests  of  the  exiles  had  been  confided  to  mere  agents,  and  had 
not  prospered ;  but,  when  fairly  roused  by  a  sense  of  danger,  the 
Drew  party  showed  at  least  as  close  a  familiarity  with  the  tactics 
of  Albany  as  with  those  of  Wall  Street.  The  moment  they  felt 
themselves  settled  at  Jersey  City  they  had  gone  to  work  to 
excite  a  popular  sympathy  in  their  own  behalf.  The  cry  of 
monopoly  was  a  sure  card  in  their  hands.  They  cai-ed  no  more 
for  the  actual  welfare  of  commerce,  involved  in  railroad  compe- 
tition, than  they  did  for  the  real  interests  of  the  Erie  Railway; 
but  they  judged  truly  that  there  was  no  limit  to  the  extent  to 
which  the  public  might  be  imposed  upon.  An  active  competition 
with  the  Vanderbilt  roads,  by  land  and  water,  was  inaugurated ; 
fares  and  freight  on  the  Erie  were  reduced  on  an  average  by 
one  third;  sounding  proclamations  were  issued;  "interviewers" 


A  CHAPTER   OF   EllIE  31 

from  the  press  returned  rejoicing  from  Taylor';;  Hotel  to  New 
York  City,  and  the  Jersey  shore  quaked  under  the  clatter  of  this 
Chinese  battle.  The  influence  of  these  tactics  made  itself  felt 
at  once.  By  the  middle  of  March  memorials  against  monopoly 
began  to  flow  in  at  Albany. 

While  popular  sympathy  w^as  thus  roused  by  the  bribe  of 
active  competition,  a  bill  was  introduced  into  the  Assembly,  in 
the  Erie  interest,  legalizing  the  recent  issue  of  new  stock,  de- 
claring and  regulating  the  power  of  issuing  convertible  bonds, 
providing  for  a  broad-gauge  connection  with  Chicago  and  the 
guaranty  of  the  bonds  of  the  Boston,  Hartford  &  Erie,  and 
finally  forbidding,  in  so  far  as  any  legislation  could  forbid,  the 
consolidation  of  the  Central  and  the  Erie  in  the  hands  of  Van- 
derbilt.  This  bill  was  referred  to  the  Committee  on  Railroads 
on  the  13th  of  March.  On  the  20th  a  public  hearing  was 
begun,  and  the  committee  proceeded  to  take  evidence,  aided  by 
a  long  array  of  opposing  counsel,  most  of  whom  had  figured  in 
the  proceedings  in  the  courts  of  law.  In  a  few  days  the  bill 
was  adversely  reported  upon,  and  the  report  adopted  in  the 
Assembly  by  the  decisive  vote  of  eighty-three  to  thirty-two. 
This  was  upon  the  27th  of  March.  The  hint  was  a  broad  one  ; 
the  exiles  must  give  closer  attention  to  their  interests.  So  soon 
as  the  news  of  this  adverse  action  reached  Jersey  City,  it  was 
decided  that  Mr.  Jay  Gould  should  brave  the  terrors  of  the 
law,  and  personally  superintend  matters  at  Albany.  Neither  Mr. 
Drew  nor  his  associates  desired  to  become  permanent  residents 
of  Jersey  City;  nor  did  they  wish  to  return  to  New  York  as 
criminals  on  their  way  to  jail.  Mr.  Gould  was  to  pave  the  way 
to  a  different  return  by  causing  the  recent  issue  of  convertible 
bonds  to  be  legalized.  That  once  done.  Commodore  Vanderbilt 
was  not  the  man  to  wage  an  unavailing  war,  and  a  compromise, 
in  which  Barnard  and  his  processes  of  contempt  would  be 
thrown  in  as  a  makeweight,  could  easily  be  effected.  A  rumor 
was  therefore  started  that  Mr.  Gould  was  to  leave  for  Ohio, 
supplied  with  the  necessary  authority  and  funds  to  press  vig- 
orously to  completion  the  eighty  miles  of  broad-gauge  track 
between  Akron  and  Toledo,  which  would  open  to  the  Erie  the 


•A'2,  KAILW.W     I'KOl'.l.KMS 

imu'h-ctnctiMl  connection  with  Chiciigo.  IhivinLi^  hung  out  this 
f;ilsc  ligliU  Mr.  .lay  (Jouhl  WHMit  on  liis  mission,  the  president 
tA'  the  coinpany  having  some  time  })reviously  drawn  half  a 
million   of  dollars  out  of  the  overllowing  Erie   treasury. 

This  mission  was  by  no  means  unattended  Ijy  diHieulties.  In 
the  fust  phice,  .ludge  Barnard's  processes  for  contempt  seemed 
to  thrcatt'u  the  liberty  oi  Mr.  (iould's  person.  lie  left  Jersey 
City  and  arrived  at  Albany  on  the  30th  day  of  March,  three  days 
after  the  defeat  of  tlie  Erie  bill,  and  two  days  before  Mi".  Mat- 
toon  had  made  up  his  mind  as  to  which  report  he  would  sign. 
Naturally  his  opponents  were  well  satisfied  with  the  present 
asjject  of  affairs,  and  saw  no  benefit  likely  to  arise  from  Mr. 
Gould's  presence  in  Albany.  The  day  after  his  arrival,  there- 
fore, he  was  arrested,  on  the  writ  issued  against  him  for  con- 
tempt of  court,  and  held  to  bail  in  half  a  million  of  dollars  for 
his  appearance  in  New  York  on  the  following  Saturday.  He 
was  immediately  bailed  of  course,  and  for  the  next  few  days 
devoted  himself  assiduously  to  the  business  he  had  in  hand. 
On  Saturday  he  appeared  before  Judge  Barnard,  and  was  duly 
put  in  charge  of  the  sheriff  to  answer  certain  interrogatories. 
It  would  seem  to  have  been  perfectly  easy  for  him  to  give  the 
necessary  bail,  and  to  return  from  Barnard's  presence  at  once  to 
Albany;  but  the  simple  method  seems  never  to  have  been 
resorted  to  throughout  these  complications :  nothing  was  ever 
done  without  the  interposition  of  a  writ  and  the  assistance  of  a 
crowd  of  counsel.  In  this  case  Judge  Barrett  of  the  Common 
Pleas  was  appealed  to,  who  issued  a  writ  of  habeas  corpus,  by  vir- 
tue of  which  Mr.  Gould  was  taken  out  of  the  hands  of  the  sheriff 
and  again  brought  into  court.  Of  course  the  hearing  of  the 
case  was  deferred,  and  it  was  equally  a  matter  of  course  that 
Mr.  Gould  was  bent  on  returning  at  once  to  his  field  of  labor. 
The  officer  to  whose  care  Mr.  Gould  was  intrusted  was  espe- 
cially warned  by  the  court,  in  Mr.  Gould's  presence,  that  he  was 
not  to  allow  his  charge  to  go  out  of  his  sight.  This  difficulty 
was  easily  surmounted.  Mr.  Gould  went  by  an  early  train  to 
Albany,  taking  the  officer  with  him  in  the  capacity  of  a  travel- 
ing companion.     Once  in  Albany  he  was  naturally  taken  ill,  — 


A  CHAPTER  OF  ERIE  33 

not  too  ill  to  go  to  the  Capitol  in  the  midst  of  a  snowstorm, 
but  much  too  ill  to  think  of  returning  to  New  York.  On  the 
10th  the  trusty  official  and  traveling  companion  signified  to 
Mr.  Gould  that  his  presence  was  much  desired  before  Judge 
Barrett,  and  intimated  an  intention  of  carrying  him  back  to 
New  York.  Mr.  Gould  then  pleaded  the  delicate  condition  of 
his  health,  and  wholly  declined  to  undergo  the  hardships  of  the 
proposed  journey.  Whereupon  the  officer,  stimulated,  as  was 
alleged,  by  Gould's  opponents,  returned  alone  to  New  York, 
and  reported  his  charge  to  the  court  as  a  runaway.  A  new 
spectacle  of  judicial  indignation  ensued,  and  a  new  process  for 
contempt  seemed  imminent.  Of  course  nothing  came  of  it.  A 
few  affidavits  from  Albany  pacified  the  indignant  Barrett.  The 
application  for  a  habeas  corpus  was  discharged,  and  Mr.  Gould 
was  theoretically  returned  into  the  custody  of  the  sheriff. 
Thereupon  the  required  security  for  his  appearance  when 
needed  was  given ;  and  meanwhile,  pending  the  recovery  of  his 
health,  he  assiduously  devoted  the  tedious  hours  of  convalescence 
to  the  task  of  cultivating  a  thorough  understanding  between 
himself  and  the  members  of  the  legislature. 

******** 
The  full  and  true  history  of  this  legislative  campaign  will 
never  be  known.  If  the  official  reports  of  investigating  com- 
mittees are  to  be  believed,  Mr.  Gould  at  about  this  time 
underwent  a  curious  psychological  metamorphosis,  and  suddenly 
became  the  veriest  simpleton  in  money  matters  that  ever  fell 
into  the  hands  of  happy  sharpers.  Cunning  lobby  members  had 
but  to  pretend  to  an  influence  over  legislative  minds,  which 
every  one  knew  they  did  not  possess,  to  draw  unlimited  amounts 
from  this  verdant  habitue  of  Wall  Street.  It  seemed  strange 
that  he  could  have  lived  so  long  and  learned  so  little.  He  dealt 
in  large  sums.  He  gave  to  one  man,  in  whom  he  said  "  he  did 
not  take  much  stock,"  the  sum  of  'f5000,  "just  to  smooth  him 
over."  This  man  had  just  before  received  $5000  of  Erie  money 
from  another  agent  of  the  company.  It  would,  therefore,  be 
interesting  to  know  what  sums  Mr.  Gould  paid  to  those  individ- 
uals in  whom  he  did  "  take  much  stock."     Another  individual 


34  i;.\ii.\VAV  ri;()r.T,KiMS 

is  reported  to  have  received  8100,000  from  one  side  "to  influ- 
eiioe  legislation,"  and  to  have  subse(|uently  received  (it»70,000 
from  the  otlier  side  to  disa{)pear  with  the  money;  which  he 
accordingly  did.  and  thereafter  became  a  gentleman  of  elegant 
leisure.  One  senator  was  openly  charged  in  the  columns  of  the 
press  with  receiving  a  bribe  of  fji<20,000  from  one  side,  and  a 
second  bribe  of  ti^l5,000  from  the  otlier;  but  Mr.  Gould's  foggy 
mental  condition  only  enabled  him  to  be  "  perfectly  astounded  " 
at  the  action  of  this  senator,  though  he  knew  nothing  of  any 
such  transactions.  Other  senators  were  blessed  with  a  sudden 
accession  of  wealth,  but  in  no  case  was  there  any  jot  or  tittle 
of  proof  of  bribery.  Mr.  Gould's  rooms  at  the  Develin  House 
overflowed  with  a  joyous  company,  and  his  checks  were  numer- 
ous and  heavy;  but  why  he  signed  them,  or  what  became  of 
them,  he  seemed  to  know  less  than  any  man  in  Albany.  This 
strange  and  expensive  hallucination  lasted  until  about  the  mid- 
dle of  April,  when  Mr.  Gould  was  happily  restored  to  his  nor- 
mal condition  of  a  shrewd,  acute,  energetic  man  of  business; 
nor  is  it  known  that  he  has  since  experienced  any  relapse  into 
financial  idiocy. 

About  the  period  of  j\Ir.  Gould's  arrival  in  Albany  the  tide 
turned,  and  soon  began  to  flow  strongly  in  favor  of  Eiie  and 
against  Vanderbilt.  How  much  of  this  was  due  to  the  skillful 
manipulations  of  Gould,  and  how  much  to  the  rising  popular 
feeling  against  the  practical  consolidation  of  competing  lines, 
cannot  be  decided.  The  popular  protests  did  indeed  pour  in 
by  scores,  but  then  again  the  Erie  secret-service  money  poured 
out  like  water.  Yet  Mr.  Gould's  task  was  sufflciently  difficult. 
After  the  adverse  report  of  the  Senate  Committee,  and  the 
decisive  defeat  of  the  bill  introduced  into  the  Assembly,  any 
favorable  legislation  seemed  almost  hopeless.  Both  Houses 
were  committed.  Vanderbilt  had  but  to  prevent  action,  —  to 
keep  things  where  they  were,  and  the  return  of  his  opponents 
to  New  York  was  impracticable,  unless  with  his  consent;  he 
appeared,  in  fact,  to  be  absolute  master  of  the  situation.  It 
seemed  almost  impossible  to  introduce  a  bill  in  the  face  of  his 
great  influence,  and  to  navigate  it  through  the  many  stages 


A  CHAPTER   OF  ERIE  35 

of  legislative  action  and  executive  approval,  without  some- 
where giving  him  an  opportunity  to  defeat  it.  This  was  the  task 
Gould  had  before  him,  and  he  accomplished  it.  On  the  13th 
of  April  a  bill,  which  met  the  approval  of  the  Erie  party,  and 
which  Judge  Barnard  subsequent!}-  compared  not  inaptly  to  a 
bill  legalizing  counterfeit  money,  was  taken  up  in  the  Senate  ; 
for  some  days  it  was  warmly  debated,  and  on  the  18th  was  passed 
by  the  decisive  vote  of  seventeen  to  twelve.  Senator  Mattoon 
had  not  listened  to  the  debate  in  vain.  Perhaps  his  reason  was 
convinced,  or  perhaps  he  had  sold  out  new  "  points  "  and  was 
again  cheating  himself  or  somebody  else ;  at  any  rate,  that 
thrifty  senator  was  found  voting  with  the  majority.  The  bill 
practically  legalized  the  recent  issues  of  bonds,  but  made  it 
a  felony  to  use  the  proceeds  of  the  sale  of  these  bonds  except  for 
completing,  furthering,  and  operating  the  road.  The  guaranty 
of  the  bonds  of  connecting  roads  was  authorized,  all  contracts 
for  consolidation  or  division  of  receipts  between  the  Erie  and 
the  Vanderbilt  roads  were  forbidden,  and  a  clumsy  provision 
was  enacted  that  no  stockholder,  director,  or  officer  in  one  of  the 
Vanderbilt  roads  should  be  an  officer  or  director  in  the  Erie, 
and  vice  versa.  The  bill  was,  in  fact,  an  amended  copy  of  the 
one  voted  down  so  decisively  in  the  Assembly  a  few  days  before, 
and  it  was  in  this  body  tliat  the  tug  of  war  was  expected 
to  come. 

The  lobby  was  now  full  of  animation ;  fabulous  stories  were 
told  of  the  amounts  which  the  contending  parties  were  willing 
to  expend ;  never  before  had  the  market  quotations  of  votes 
and  influence  stood  so  high.  The  wealth  of  Vanderbilt  seemed 
pitted  against  the  Erie  treasury,  and  the  vultures  flocked  to 
Albany  from  every  part  of  the  State.  Suddenly,  at  the  very 
last  moment,  and  even  while  special  trains  were  bringing  up 
fresh  contestants  to  take  part  in  the  fray,  a  rumor  ran  through 
Albany  as  of  some  great  public  disaster,  spreading  panic  and 
terror  through  hotel  and  coriidor.  The  observer  was  reminded 
of  the  dark  days  of  the  war,  when  tidings  came  of  some  great 
defeat,  as  that  on  the  Chickahominy  or  at  Fredericksburg.  In 
a  moment  the  lobby  was  smitten  with  despair,  and  the  cheeks 


36  h'AlLWAN     I'K'or.LMMS 

of  ilii'  U'ujislators  witc  blaiiclu'd,  tor  it  was  reported  that  Van- 
tlorbilt  hiul  willulrawn  his  opposirum  to  the  hill.  The  report 
was  true.  Kilhor  the  C'onunodore  had  counted  the  cost  and 
judged  it  excessive,  or  lie  despaired  of  the  result.  At  any  rate, 
he  had  yielded  in  advance.  In  a  few  moments  the  long  strug- 
gle was  over,  and  that  bill  which,  in  an  unamended  form,  had 
but  a  few  days  before  been  thrown  out  of  the  Assembly  by  a 
vote  of  eighty-three  to  thirty-two,  now  passed  it  by  a  vote  of 
one  hundred  and  one  to  six,  and  was  sent  to  the  Governor  for 
his  signature.  Then  the  wrath  of  the  disappointed  members 
turned  on  Vanderbilt.  Decency  was  forgotten  in  a  frenzied 
sense  of  disappointed  avarice.  That  same  night  the  pro  rata 
freight  bill,  and  a  bill  compelling  the  sale  of  through  tickets 
by  competing  lines,  were  hurriedly  passed,  simply  because  they 
were  thought  hurtful  to  Vanderbilt ;  and  the  docket  was  ran- 
sacked in  search  of  other  measures,  calculated  to  injure  or 
annoy  him.  An  adjournnu'ut,  however,  brought  reflection,  and 
subsequently,  on  this  subject,  the  legislature  stultified  itself 
no  more. 

The  bill  had  passed  the  legislature ;  would  it  receive  the 
executive  signature?  Here  was  the  last  stage  of  danger.  For 
some  time  doubts  were  entertained  on  this  point,  and  the  last 
real  conflict  between  the  opposing  interests  took  place  in  the 
Executive  Chamber  at  Albany.  There,  on  the  afternoon  of  the 
21st  of  April,  Commodore  Vanderbilt's  counsel  appeared  before 
Governor  Fenton,  and  urged  upon  him  their  reasons  why  the 
bill  should  be  returned  by  him  to  the  Senate  without  his  signa- 
ture. The  arguments  were  patiently  listened  to,  but,  when  they 
had  closed,  the  executive  signature  placed  the  seal  of  success 
upon  Mr.  Gould's  labors  at  Albany.  Even  here  the  voice  of 
calumny  was  not  silent.  As  if  this  remarkable  controversy  was 
destined  to  leave  a  dark  blot  of  suspicion  upon  every  depart- 
ment of  the  civil  service  of  New  York,  there  were  not  wanting 
those  who  charged  the  Executive  itself  with  the  crowning  act 
in  this  history  of  corruption.  The  very  sum  pretended  to  have 
been  paid  was  named ;  the  broker  of  executive  action  was 
pointed  out,  and  the  number  of  minutes  was  specified  which 


A   CHAPTER   OF  ERIE  37 

should  intervene  between  the   payment   of   the   bribe  and  the 
signing  of  the  law/ 

Practically,  the  conflict  was  now  over,  and  the  period  of 
negotiation  had  already  begun.  The  combat  in  the  courts  was 
indeed  kept  up  until  far  into  May,  for  the  angry  passions  of  the 
lawyers  and  of  the  judges  required  time  in  which  to  wear  them- 
selves out.  Day  after  day  the  columns  of  the  press  revealed 
fresh  scandals  to  the  astonished  public,  which  at  last  grew  in- 
different to  such  revelations.  Beneath  all  the  wrangling  of  the 
courts,  however,  while  the  popular  attention  was  distracted  by 
the  clatter  of  lawyers'  tongues,  the  leaders  in  the  controversy 
were  quietly  approaching  a  settlement. 

At  last,  upon  the  2d  of  July,  Mr.  Eldridge  formally'  announced 
to  the  Board  of  Directors  that  the  terms  of  peace  had  been 
agreed  upon.  Commodore  Vanderbilt  was,  in  the  first  place, 
provided  for.  He  was  to  be  relieved  of  fifty  thousand  shares 
of  Erie  stock  at  70,  receiving  therefor  $2,500,000  in  cash,  and 
11,250,000  in  bonds  of  the  Boston,  Hartford  &  Erie  at  80.  He 
was  also  to  receive  a  further  sum  of  $1,000,000  outright,  as  a 
consideration  for  the  privilege  the  Erie  road  thus  purchased  of 
calling  upon  him  for  his  remaining  fifty  thousand  shares  at  70 
at  any  time  within  four  months.  He  was  also  to  have  two 
seats  in  the  Board  of  Directors,  and  all  suits  were  to  be  dis- 
missed and  offenses  condoned.  The  sum  of  $429,250  was  fixed 
upon  as  a  proper  amount  to  assuage  the  sense  of  wrong  from 
which  his  two  friends  Work  and  Schell  had  suffered,  and  to 
efface  from  their  memories  all  recollection  of  the  unfortunate 
"  pool "  of  the  previous  December.  Why  the  owners  of  the 
Erie  Railway  should  have  paid  this  indemnity  of  $4,000,000 
is  not  very  clear.  The  operations  were  apparently  outside  of  the 
business  of  a  railway  company,  and  no  more  connected  with 

1  It  is  but  justice  to  Governor  Fenton  to  say,  that,  though  this  charge  was 
boldly  advanced  by  respectable  journals  of  his  own  party,  it  cannot  be  consid- 
ered as  sustained  by  the  evidence.  The  testimony  on  the  point  will  be  found 
in  the  report  of  Senator  Hale's  investigating  committee.  Documents  (Senate), 
1809,  No.  52,  pp.  146-148,  151-155. 

46791 


38  i;.\ll,\\A\     I'Kol'.l.KMS 

tlu'  sU>t'kholiU'is  of  llu'  I'a'w  llian  wnc  llic  hutclicrs'  bills  of  tlie 
iiulivi«lu;il  iliroi-tois. 

W'liilr  N'aiulerbilL  ;ukI  his  frieiuls  were  thus  provided  for, 
Mr.  l)re\v  was  to  bo  left  in  undisturbed  enjoyment  of  the  fruits 
of  his  reeent  operations,  but  was  to  pay  into  the  treasury 
''5!o40,000  and  interest,  in  full  discharge  of  all  claims  and  causes 
of  action  which  the  Erie  company  might  have  against  him. 
The  Boston  party,  as  represented  by  j\Ir.  Eldridge,  was  to  be 
relieved  of  .i'o, 000,000  of  their  Boston,  Hartford  &  Erie  bonds, 
for  which  they  were  to  receive  •'j^4,000,000  of  Erie  acceptances. 
None  of  these  parties,  therefore,  had  anything  to  complain  of, 
whatever  might  be  the  sensations  of  the  real  owners  of  the  rail- 
way. A  total  amount  of  some  i>9,000,000  in  cash  was  drawn 
from  the  treasury  in  fulfillment  of  this  settlement,  as  the  persons 
concerned  were  pleased  to  term  this  remarkable  disposition  of 
property  intrusted  to  their  care, 

Messrs.  Gould  and  Fisk  still  remained  to  be  taken  care  of, 
and  to  them  their  associates  left  —  the  Erie  Railway.  These 
gentlemen  subsequently  maintained  that  they  had  vehemently 
opposed  this  settlement,  and  had  denounced  it  in  the  secret 
councils  as  a  fraud  and  a  robbery.  j\Ir.  Fisk  was  peculiarly 
outspoken  in  relation  to  it,  and  declared  himself  "  thunder- 
struck and  dumfounded"  that  his  brother  directors  whom  he 
had  supposed  respectable  men  should  have  had  anything  to  do 
with  any  such  proceeding.  A  small  portion  of  this  statement 
is  not  wholly  improbable.  The  astonishment  at  the  turpitude 
of  his  fellow-ofificials  was  a  little  unnecessary  in  one  who  had 
already  seen  "more  robbery"  during  the  year  of  his  connection 
with  the  Erie  Railway  than  he  had  "  ever  seen  before  in  the 
same  space  of  time," — so  much  of  it  indeed  that  he  dated  his 
'•gray  hairs"  from  that  7th  of  October  which  saw  his  election 
to  the  board.  That  Mr.  Fisk  and  Mr.  Gould  were  extremely 
indignant  at  a  partition  of  plunder  from  which  they  were  ex- 
cluded is,  however,  very  certain.  The  rind  of  the  orange  is 
not  generally  considered  the  richest  part  of  the  fruit;  a  cor- 
poration on  the  verge  of  bankruptcy  is  less  coveted,  even  by 
operators  in   Wall   Street,   than    one   rich    in   valuable   assets. 


A  CHiVPTER  OF   EEIE  39 

Probably  at  this  time  these  gentlemen  seriously  debated  the 
expediency  of  resorting  again  to  a  war  of  injunctions,  and  care- 
fully kept  open  a  way  for  doing  so ;  however  this  may  have 
been,  they  seem  finally  to  have  concluded  that  there  was  yet 
plunder  left  in  the  poor  old  hulk,  and  so,  after  four  stormy 
interviews,  all  opposition  was  at  last  witlidrawn  and  the  defini- 
tive treaty  was  finally  signed.  .  .  .  Mr.  Eldridge  thereupon 
counted  out  his  bonds  and  received  his  acceptances,  which 
latter  were  cashed  at  once  to  close  up  the  transaction,  and  at 
once  he  resigned  his  positions  as  director  and  president.  The 
Boston  raiders  then  retired,  heavy  with  spoil,  into  their  own 
North  country,  and  there  proceeded  to  build  up  an  Erie  influ- 
ence for  New  England,  in  which  task  they  labored  with  assi- 
duity and  success.  Gradually  they  here  introduced  the  more 
highly  developed  civilization  of  the  land  of  their  temporary 
adoption  and  boldly  attempted  to  make  good  their  private 
losses  from  the  public  treasury.  A  more  barefaced  scheme 
of  plunder  never  was  devised,  and  yet  the  executive  veto  alone 
stood  between  it  and  success.  These,  however,  were  the  events 
of  another  year  and  unconnected  with  this  narrative,  from  which 
these  characters  in  tlie  Erie  management  henceforth  disappear. 
For  the  rest  it  is  only  necessary  to  say  that  Mr.  Vanderbilt, 
relieved  of  his  heavy  load  of  its  stock,  apparently  ceased  to 
concern  himself  with  Erie;  while  Daniel  Drew,  released  from 
the  anxieties  of  office,  assumed  for  a  space  the  novel  character 
of  a  looker-on  in  Wall  Street. 

Ill 

¥^  ¥^  ¥^  ^  ^         '  ^  ^  ^ 

The  appearance  of  calm  lasted  but  about  thirty  days.  Early 
in  August  it  was  evident  that  something  was  going  on.  Erie 
suddenly  fell  ten  per  cent ;  in  a  few  days  more  it  experienced 
a  further  fall  of  seven  per  cent,  touching  44  by  the  19th  of  the 
month,  upon  which  day,  to  the  astonishment  of  Wall  Street, 
the  transfer  books  of  the  company  were  closed  preparatory 
to  the  annual  election.  As  this  election  was  not  to  take  place 
until   the  13th   of  October,   and  as   the  books   had  thus  been 


4tl  KAII.W  A^■    I'Kor.lJ'lMS 

closoil  tliirty  days  in  advance  of  the  usnal  time,  it  l(X)ked  very 
nuu'li  as  iliDuoh  the  managers  were  satislied  with  the  present 
disposition  of  the  stock,  and  meant,  by  keeping  it  where  it  was, 
to  preclude  any  such  unpleasantness  as  an  opposition  ticket. 
The  courts  and  a  renewed  war  of  injunctions  were  of  course 
open  to  any  contestants,  including  Connnodore  Vanderbilt,  who 
might  desire  to  avail  themselves  of  them ;  probably,  however, 
the  memory  of  recent  struggles  was  too  fresh  to  permit  any  one 
to  embark  on  those  treacherous  waters.  At  any  rate,  nothing 
of  the  sort  was  attempted.  The  election  took  place  at  the  usual 
time,  and  the  ring  in  control  voted  itself,  without  opposition,  into 
a  new  lease  of  power.  Two  new  names  had  meanwhile  appeared 
in  the  list  of  Erie  directors,  —  those  of  Peter  13.  Sweeney  and 
William  M.  Tweed,  the  two  most  prominent  leaders  of  that 
notorious  ring  which  controls  the  proletariat  of  New  York  City 
and  governs  the  politics  of  the  State.  The  alliance  was  an 
ominous  one,  for  the  construction  of  the  new  board  can  be 
stated  in  few  words,  and  calls  for  no  comment.  It  consisted 
of  the  Erie  ring  and  the  Tammany  ring,  brought  together  in 
close  political  and  financial  union  ;  and,  for  the  rest,  a  working 
majority  of  supple  tools  and  a  hopeless  minority  of  respectable 
figureheads.  This  formidable  combination  shot  out  its  feelers 
far  and  wide :  it  wielded  the  influence  of  a  great  corporation 
with  a  capital  of  a  hundred  millions ;  it  controlled  the  politics 
of  the  first  city  of  the  New  World ;  it  sent  its  representatives 
to  the  Senate  of  the  State,  and  numbered  among  its  agents, 
the  judges  of  the  courts.  Compact,  disciplined,  and  reckless,  it 
knew  its  own  power  and  would  not  scruple  to  use  it. 

It  was  now  the  month  of  October,  and  the  harvest  had  been 
gathered.  The  ring  and  its  allies  determined  to  reap  their  harvest 
also,  and  that  harvest  was  to  be  nothing  less  than  a  contribution 
levied,  not  only  upon  Wall  Street  and  New  York,  but  upon  all 
the  immense  interests,  commercial  and  financial,  which  radiate 
from  New  York  all  over  the  country.  Like  the  Csesar  of  old, 
they  issued  their  edict  that  all  the  world  should  be  taxed.  The 
process  was  not  novel,  but  it  was  effective.  A  monetary  strin- 
gency may  be  looked  for  in  New  York  at  certain  seasons  of  every 


A  CHAPTER  OF  EIIIE  41 

year.  It  is  generally  most  severe  in  the  autumn  months,  when 
the  crops  have  to  be  moved,  and  the  currency  is  drained  steadily 
away  from  the  financial  center  towards  the  extremities  of  the 
system.  The  method  by  which  an  artificial  stringency  is  pro- 
duced is  thus  explained  in  a  recent  report  of  the  Comptroller 
of  the  Currency : 

It  is  scarcely  possible  to  avoid  the  infei-ence  that  nearly  one  half  of  the 
available  resources  of  the  national  banks  in  the  city  of  Xew  York  are  used 
in  the  operations  of  the  stock  and  gold  exchange ;  that  they  are  loaned 
upon  the  security  of  stocks  which  are  bought  and  sold  largely  on  specula- 
tion, and  which  are  manipulated  by  cliques  and  combinations,  according 
as  the  bulls  or  bears  are  for  the  moment  in  the  ascendency.  .  .  .  Taking- 
advantage  of  an  active  demand  for  money  to  move  the  crops  West  and 
South,  shrewd  operators  form  their  combination  to  depress  the  market  by 
"locking  up"  money,  —  withdrawing  all  they  can  control  or  borrow  from 
the  common  fund ;  money  becomes  scarce,  the  rate  of  interest  advances,  ■ 
and  stocks  decline.  The  legitimate  demand  for  money  continues  ;  and, 
fearful  of  trenching  on  their  reserve,  the  banks  are  strained  for  means. 
They  dare  not  call  in  their  demand  loans,  for  that  would  compel  their 
customers  to  sell  securities  on  a  falling  market,  which  would  make  matters 
worse.  Habitually  lending  their  means  to  the  utmost  limit  of  prudence, 
and  their  credit  much  beyond  that  limit,  to  brokers  and  speculators,  they 
are  powerless  to  afford  relief ;  —  their  customers  by  the  force  of  circum- 
stances become  their  masters.  The  banks  cannot  hold  back  or  withdraw 
from  the  dilemma  in  which  their  mode  of  doing  business  has  placed  them. 
They  must  carry  the  load  to  save  their  margins.  A  panic  which  should 
greatly  reduce  the  price  of  securities  would  occasion  serious,  if  not  fatal, 
results  to  the  banks  most  extensively  engaged  in  such  operations,  and  would 
produce  a  feeling  of  insecurity  which  would  be  very  dangerous  to  the  entire 
banking  interest  of  the  country.^ 

All  this  machinery  was  now  put  in  motion ;  the  banks  and 
their  customers  were  forced  into  the  false  j)osition  described,  and 
towards  the  end  of  October  it  had  become  perfectly  notorious  in 
Wall  Street  that  large  new  issues  of  Erie  had  been  made,  and 
that  these  new  issues  were  intimately  connected  with  the  sharp 
stringency  then  existing  in  the  money  market.  It  was  at  last 
determined  to  investigate  the  matter,  and  upon  the  27  th  of 
the  month  a  committee  of  three  was  appointed  by  the  Stock 
Exchange  to  wait  upon  the  officers  of  the  corporation  with  the 

1  Finance  Report,  18(J8.  pp.  20,  21. 


42  i:aii,\\.\\    I'Kor.MiMS 

view  of  proeurliiL;'  siicli  information  ;is  they  miq'lit  be  willing 
to  iini)art.  'Tlu'  i(iniuiitit."o  ealleil  on  Mr.  (JoiiUl  and  stated  the 
objei't  ot  thfir  \isii.  In  ri'})ly  to  their  in(|uiries  Mr.  Gould 
informed  iheni  that  Mrie  ('(Hivertihh'  bonds  for  ten  millions  of 
dollars  had  been  issued,  half  of  which  hail  already  been,  and 
the  rest  of  whieh  woukl  be,  eonverled  into  stock;  that  the 
money  had  been  devoted  to  the  purchase  of  Boston,  Hartford 
&  Erie  bonds  for  five  millions,  and  also  —  of  course  —  to  pay- 
ments for  steel  rails.  The  committee  desired  to  know  if  any 
further  issue  of  stock  was  in  contemplation,  but  were  obliged  to 
rest  satisfied  with  a  calm  assurance  that  no  new  issue  was  just 
then  contemplated  except  "in  certain  contingencies;"  from  which 
enigmatical  utterances  Wall  Street  was  left  to  infer  that  the 
exigencies  of  Messrs.  Gould  and  Fisk  were  elements  not  to  be 
omitted  from  any  calculations  as  to  the  future  of  Erie  and  the 
money  market.  The  amount  of  these  issues  of  new  stock  was, 
of  course,  soon  whispered  in  a  general  way ;  but  it  was  not  till 
montlis  afterwards  that  a  sworn  statement  of  the  secretary  of  the 
Erie  Railway  revealed  the  fact  that  tlie  stock  of  the  corporation 
had  been  increased  from  $34,265,300  on  the  1st  of  July,  1868, 
the  date  when  Drew  and  his  associates  had  left  it,  to  -$57,766,300 
on  the  24th  of  October  of  the  same  year,  or  by  two  hundred 
and  thirty-five  thousand  shares  in  four  months.'  This,  too,  had 
been  done  without  consultation  with  the  board  of  directors,  and 
with  no  other  authority  than  that  conferred  by  the  ambiguous 
resolution  of  February  19th.  Under  that  resolution  the  stock  of 
the  company  had  now  been  increased  one  hundred  and  thirty- 
eight  per  cent  in  eight  months.  Such  a  process  of  inflation 
may,  perhaps,  be  justly  considered  the  most  extraordinary  feat 
of  financial  legerdemain  which  history  has  yet  recorded. 

1  In  April,  1871,  althoui^h  the  stock  was  then  nominally  registered,  a  further 
secret  issue  was  made  by  which  some  SOOO.OOO  in  cash  was  realized  on  83.000,000 
of  stock.  Periodical  issues  had  then  carried  the  gross  amount  up  to  the  neigh- 
borhood of  S8G, 500,000;  or  from  a  total  of  250,000  shares,  when  the  manage- 
ment changed  at  the  election  of  October  17,  1867,  to  865.000  shares  within  four 
years.  Apparently  Mr.  Fisk  was  more  correct  than  usual  in  his  statement,  when 
he  remarked,  that,  having  once  joined  the  robbers,  "he  had  been  with  them 
ever  since." 


A  CHAPTER   OF   ERIE  43 

Now,  however,  when  the  committee  of  the  Stock  Exchange 
had  returned  to  those  who  sent  them,  the  mask  was  thrown  off, 
and  operations  were  conducted  with  vigor  and  determination. 
New  issues  of  Erie  were  continually  forced  upon  the  market 
until  the  stock  fell  to  35  ;  greenbacks  were  locked  up  in  the 
vaults  of  the  banks,  until  the  unexampled  sum  of  twelve  millions 
was  withdrawn  from  circulation  ;  the  prices  of  securities  and 
merchandise  declined  ;  trade  and  the  autumnal  movement  of  the 
crops  were  brought  almost  to  a  standstill  ;  and  loans  became 
more  and  more  difficult  to  negotiate,  until  at  length  even  one 
and  a  half  per  cent  a  day  was  paid  for  carrying  stocks.  Behind 
all  this  it  was  notorious  that  some  one  was  pulling  the  wires, 
the  slightest  touch  upon  wliich  sent  a  quiver  through  every  nerve 
of  the  great  financial  organism,  and  wrung  private  gain  from 
public  agony.  .  .  .  The  very  revenues  of  the  government  were 
affected  by  the  operations  of  gamblers.  They  were  therefore 
informed  that,  if  necessary,  fifty  millions  of  additional  currency 
would  be  forthcoming  to  the  relief  of  the  community,  and  then, 
and  not  till  then,  the  screws  were  loosened. 

The  harvest  of  the  speculators,  however,  was  still  but  half 
gathered.  Hitherto  the  combination  had  operated  for  a  fall. 
Now  was  the  moment  to  change  the  tactics  and  take  advantage 
of  the  rise.  The  time  was  calculated  to  a  nicety.  The  London 
infatuation  had  wonderfully  continued,  and  as  fast  as  certifi- 
cates of  stock  were  issued  they  seemed  to  take  wings  across  the 
Atlantic.  Yet  there  was  a  limit  even  to  English  credulity,  and 
in  November  it  became  evident  that  the  agents  of  foreign  houses 
were  selling  their  stock  to  arrive.  The  price  was  about  40; 
the  certificates  might  be  expected  by  the  steamer  of  the  23d. 
Instantly  the  combination  changed  front.  As  before  they  had 
depressed  the  market,  they  now  ran  it  up,  and,  almost  as  if 
by  magic,  the  stock,  which  had  been  heavy  at  40,  astonished 
every  one  by  shooting  up  to  50.  New  developments  were 
evidently  at  hand. 

At  this  point  Mr.  Daniel  Drew  once  more  made  his  appearance 
on  the  stage.  As  was  very  natural,  he  had  soon  wearied  of  the 
sameness  of  his  part  as  a  mere  looker-on  in  Wall  Street,  and  had 


41  1;AII,\\A\     I'UOI'.LKMS 

relapsed  into  his  old  habits.  He  was  no  longer  treasurer  of  the 
Krio,  and  i-ould  not  therefore  invite  the  public  to  the  game, 
while  lu'  hinisi'lf  w  ith  somber  piety  shook  the  loaded  dice.  But 
it  had  become  with  him  a  second  nature  to  operate  in  Erie,  and 
ont'C  more  ho  was  deep  in  its  movements.  At  first  he  had  com- 
binetl  wiili  bis  old  friends,  the  present  directors,  in  their  "  lock- 
ing-up  "'  conspiracy.  He  had  agreed  to  assist  them  to  the  extent 
of  four  millions.  The  vacillating,  timid  nature  of  the  man, 
however,  could  not  keep  pace  with  his  more  daring  and  deter- 
mined associates,  and,  after  embarking  a  million,  becoming 
alarmed  at  the  success  of  the  joint  operations  and  the  remon- 
strances of  those  who  were  threatened  with  ruin,  he  withdrew 
his  funds  from  the  operators'  control  and  himself  from  their 
councils.  But  though  he  did  not  care  to  run  the  risk  or  to  incur 
the  odium,  he  had  no  sort  of  objection  to  sharing  the  spoils. 
Knowing,  therefore,  or  supposing  that  he  knew,  the  plan  of 
campaign,  and  that  plan  jumping  with  his  own  bearish  inclina- 
tions, he  continued,  on  his  own  account,  operations  looking  to  a 
fall.  One  may  easily  conceive  the  wrath  of  the  Erie  operators 
at  such  a  treacherous  policy ;  and  it  is  not  ditficult  to  imagine 
their  vows  of  vengeance.  Meanwhile  all  went  well  with  Daniel 
Drew.  Erie  looked  worse  and  worse,  and  the  golden  harvest 
seemed  drawing  near.  By  the  middle  of  November  he  had  con- 
tracted for  the  delivery  of  some  seventy  thousand  shares  at  cur- 
rent prices,  averaging,  perhaps,  38,  and  probably  was  counting 
his  gains.  He  did  not  appreciate  the  full  power  and  resources 
of  his  old  associates.  On  the  14th  of  November  their  tactics 
changed,  and  he  found  himself  involved  in  terrible  entangle- 
ments,—  hopelessly  cornered.  His  position  disclosed  itself  on 
Saturday.  Naturally  the  first  impulse  was  to  have  recourse  to 
the  courts.  An  injunction  —  a  dozen  injunctions  —  could  be  had 
for  the  asking,  but,  unfortunately,  could  be  had  by  both  parties. 
Drew's  own  recent  experience,  and  his  intimate  acquaintance 
with  the  characters  of  Fisk  and  Gould,  were  not  calculated  to 
inspire  him  with  much  confidence  in  the  efficacy  of  the  law. 
But  nothing  else  remained,  and,  after  hurried  consultations 
among  the  victims,  the  lawyers  were  applied  to,  the  affidavits 


A  CHAPTER   OF  ERIE  45 

were  prepared,  and  it  was  decided  to  repair  on  the  following 
Monday  to  the  so-called  courts  of  justice. 

Nature,  however,  had  not  bestowed  on  Daniel  Drew  the  steady 
nerve  and  sturdy  gambler's  pride  of  either  Vanderbilt  or  of  his 
old  companions  at  Jersey  City.  His  mind  wavered  and  hesitated 
between  different  courses  of  action.  His  only  care  was  for  him- 
self, his  only  thought  was  of  his  own  position.  He  was  willing 
to  betray  one  party  or  the  other,  as  the  case  might  be.  He  had 
given  his  affidavit  to  those  who  were  to  bring  the  suit  on  the 
Monday,  but  he  stood  perfectly  ready  to  employ  Sunday  in 
betraying  their  counsels  to  the  defendants  in  the  suit.  A  posi- 
tion more  contemptible,  a  state  of  mind  more  pitiable,  can  hardly 
be  conceived.  After  passing  the  night  in  this  abject  condition, 
on  the  morning  of  Sunday  he  sought  out  Mr.  Fisk  for  purposes 
of  self-humiliation  and  treachery.^  He  then  partially  revealed  the 
difficulties  of  his  situation,  only  to  have  his  confidant  prove  to 
him  how  entirely  he  was  caught,  by  completing  to  him  the  reve- 
lation. He  betrayed  the  secrets  of  his  new  allies,  and  bemoaned 
his  own  hard  fate ;  he  was  thereupon  comforted  by  Mr.  Fisk 
with  the  cheery  remark  that  "  he  (Drew)  was  the  last  man  who 
ought  to  whine  over  any  position  in  which  he  placed  himself  in 
regard  to  Erie."  The  poor  man  begged  to  see  Mr.  Gould,  and 
would  take  no  denial.  Finally  Mr.  Gould  was  brought  in,  and 
the  scene  was  repeated  for  his  edification.  The  two  must  have 
been  satiated  with  revenge.  At  last  they  sent  him  away,  promis- 
ing to  see  him  again  that  evening.  At  the  hour  named  he  again 
appeared,  and,  ef ter  waiting  their  convenience,  —  for  they  spared 
him  no  humiliation,  —  he  again  appealed  to  them,  offering  them 
great  sums  if  they  would  issue  new  stock  or  lend  him  of  their 
stock.  He  implored,  he  argued,  he  threatened.  At  the  end  of 
two  hours  of  humiliation,  persuaded  that  it  was  all  in  vain,  that 
he  was  wholly  in  the  power  of  antagonists  without  mercy,  he 
took  his  hat,  said,  "  I  will  bid  you  good  night,"  and  went  his  way. 


1  It  ought  perhaps  to  be  stated  that  this  portion  of  tlie  narrative  has  no  stronger 
foundation  than  an  affidavit  of  Mr.  Fisk,  which  has  not,  however,  been  publicly 
coutradicted. 


-ill  UAIL\\A\'    I'KOl'.LKMS 

Hut  to  return  to  the  course  of  events.  Willi  the  lords  of  Erie 
forewarned  was  forearmed.  They  knew  something  of  the  method 
of  procedure  in  New  York  courts  of  hiw.  At  this  particuhir 
juncture  Mr.  .Justice  Sutherland,  a  magistrate  of  such  pure 
character  and  unsullied  reputation  that  it  is  inexplicable  how 
he  ever  came  to  be  elevated  to  the  bench  on  which  he  sits,  was 
holding  chambers,  according  to  assignment,  for  the  four  weeks 
between  the  first  Monday  in  November  and  the  first  Monday  in 
December.  By  a  rule  of  the  court,  all  applications  for  orders 
during  that  time  were  to  be  made  before  him,  and  he  only, 
according  to  the  courtesy  of  the  Bench,  took  cognizance  of  such 
proceedings.  Some  general  arrangement  of  this  nature  is  mani- 
festly necessary  tD  avoid  continual  conflicts  of  jurisdiction.  The 
details  of  the  assault  on  the  Erie  directors  having  been  settled, 
counsel  appeared  before  Judge  Sutherland  on  Monday  morning 
and  petitioned  for  an  injunction  restraining  the  Erie  directors 
from  any  new  issue  of  stock  or  the  removal  of  the  funds  of  the 
company  beyond  the  jurisdiction  of  the  court,  and  also  asking 
that  the  road  be  placed  in  the  hands  of  a  receiver.  The  suit  was 
brought  in  the  name  of  Mr.  August  Belmont,  who  was  supposed 
to  represent  large  foreign  holders.  The  petition  set  forth  at 
length  the  alleged  facts  in  the  case,  and  was  supported  by  the 
atiiidavits  of  Mr.  Drew  and  others.  Mr.  Drew  apparently  did 
not  inform  the  counsel  of  the  manner  in  which  he  had  passed 
his  leisure  hours  on  the  previous  day ;  had  he  done  so,  Mr. 
Belmont's  counsel  probably  would  have  expedited  their  move- 
ments. The  injunction  was,  however,  duly  signed,  and,  doubt- 
less, immediately  served. 

Meanwhile  Messrs.  Gould  and  Fisk  had  not  been  idle.  Ap- 
plications for  injunctions  and  receiverships  were  a  game  which 
two  could  play  at,  and  long  experience  had  taught  these  close 
observers  the  very  great  value  of  the  initiative  in  law.  Accord- 
ingly, some  two  hours  before  the  Belmont  application  was  made, 
they  had  sought  no  less  a  person  than  Mr.  Justice  Barnard, 
caught  him,  as  it  were,  either  in  his  bed  or  at  his  breakfast, 
whereupon  he  had  held  a  lit  de  justice,  and  made  divers  aston- 
ishing orders.    A  petition  was  presented  in  the  name  of  one 


A  CHAPTER  OF  ERIE  47 

Mcintosh,  a  salaried  officer  of  the  Erie  Road,  who  claimed  also 
to  be  a  shareholder.  It  set  forth  the  danger  of  injunctions  and 
of  the  appointment  of  a  receiver,  the  great  injury  likely  to  result 
therefrom,  etc.  After  due  consideration  on  the  part  of  Judge 
Barnard,  an  injunction  was  issued,  staying  and  restraining  all 
suits,  and  actually  appointing  Jay  Gould  receiver,  to  hold  and 
disburse  the  funds  of  the  company  in  accordance  with  the  reso- 
lutions of  the  Board  of  Directors  and  the  Executive  Committee. 
This  certainly  was  a  very  brilliant  flank  movement,  and  testi- 
fied not  less  emphatically  to  Gould's  genius  than  to  Barnard's 
law;  but  most  of  all  did  it  testify  to  the  efficacy  of  the  new 
combination  between  Tammany  Hall  and  the  Erie  Railway. 
Since  the  passage  of  the  bill  "to  legalize  counterfeit  money," 
in  April,  and  the  present  November,  new  light  had  burst  upon 
the  judicial  mind,  and  as  the  news  of  one  injunction  and  a 
vague  rumor  of  the  other  crept  through  Wall  Street  that  day, 
it  was  no  wonder  that  operators  stood  aghast  and  that  Erie 
fluctuated  wildly  from  50  to  61  and  back  to  48. 

The  Erie  directors,  however,  did  not  rest  satisfied  with  the 
position  which  they  had  won  through  Judge  Barnard's  order. 
That  simply  placed  them,  as  it  were,  in  a  strong  defensive  atti- 
tude. They  were  not  the  men  to  stop  there :  they  aspired  to 
nothing  less  than  a  vigorous  offensive.  With  a  superb  au- 
dacity, which  excites  admiration,  the  new  trustee  immediately 
filed  a  supplementary  petition.  Therein  it  was  duly  set  forth 
that  doubts  had  been  raised  as  to  the  legality  of  the  recent  issue 
of  some  two  hundred  thousand  shares  of  stock,  and  that  only 
about  this  amount  was  to  be  had  in  America ;  the  trustee  there- 
fore petitioned  for  authority  to  use  the  funds  of  the  corporation 
to  purchase  and  cancel  the  whole  of  this  amount  at  any  price 
less  than  the  par  value,  without  regard  to  the  rate  at  which  it 
had  been  issued.  The  desired  authority  was  conferred  by  Mr. 
Justice  Barnard  as  soon  as  asked.  Human  assurance  could  go 
no  further.  The  petitioners  had  issued  these  shares  in  the  bear 
interest  at  40,  and  had  run  down  the  value  of  Erie  to  35 ;  they 
had  then  turned  round,  and  were  now  empowered  to  buy  back 
that  very  stock  in  the  bull  interest,  and  in  the  name  and  with 


48  KAILW.W     I'Uor.lJOMS 

the  fuiuls  of  tlie  corporation,  at  par.  A  law  of  the  State  dis- 
tiiu'tly  forbade  corporations  from  operating  in  their  own  stock  ; 
bill  this  law  was  disregarded  as  if  it  had  been  only  an  injuuc- 
tion.  An  injunction  forbade  the  treasurer  from  making  any 
disposition  of  the  funds  of  the  company,  and  this  injunction 
was  respected  no  more  than  the  law.  These  trustees  had  sold 
the  property  of  their  wards  at  40  ;  they  were  now  prepared  to 
use  the  money  of  their  wards  to  buy  the  same  property  back  at 
80,  and  a  judge  had  been  found  ready  to  confer  on  them  the 
power  to  do  so.  Drew  could  not  withstand  such  tactics,  and 
indeed  the  annals  of  Wall  Street  furnished  no  precedent  or 
parallel. 

When  this  last,  undreamed-of  act  was  made  public  on  Wednes- 
day at  noon,  it  was  apparent  that  the  crisis  was  not  far  off. 
Daniel  Drew  was  cornered.  Erie  was  scarce  and  selling  at  47, 
and  would  not  become  plenty  until  the  arrival  of  the  English 
steamer  on  Monday;  and  so,  at  47,  Mr.  Drew  flung  himself  into 
the  breach  to  save  his  endangered  credit,  and,  under  his  pur- 
chases, the  stock  rapidly  rose,  until  at  five  o'clock  Wednesday 
afternoon  it  reached  57.  Contrary  to  expectation,  the  "corner" 
had  not  yet  culminated.  It  became  evident  the  next  morning 
that  before  two  o'clock  that  day  the  issue  would  be  decided. 
Drew  fought  desperately.  The  Brokers'  Board  was  wild  with 
excitement.  High  words  passed  ;  collisions  took  place ;  the 
bears  were  savage,  and  the  bulls  pitiless.  Erie  touched  62,  and 
there  was  a  difference  of  sixteen  per  cent  between  cash  stock 
and  stock  sold  to  be  delivered  in  three  days,  —  when  the 
steamer  would  be  in,  —  and  a  difference  of  ten  per  cent  between 
stock  to  be  delivered  on  the  spot  and  that  to  be  delivered  at 
the  usual  time,  which  was  a  quarter  after  two  o'clock.  Millions 
were  handled  like  thousands  ;  fabulous  rates  of  interest  were 
paid  ;  rumors  of  legal  proceedings  were  flying  about,  and  forays 
of  the  Erie  chiefs  on  the  Vanderbilt  roads  were  confidently  pre- 
dicted. New  York  Central  suddenly  shot  up  seven  per  cent 
under  these  influences,  and  Vanderbilt  seemed  about  to  enter  the 
field.  The  interest  of  the  stock  market  centered  in  the  combatants 


A  CHAPTER  OF  EEIE  49 

and  on  these  two  great  corporations.  All  other  stocks  were  quiet 
and  neglected  while  the  giants  were  fighting  it  out.  The  battle 
was  too  fierce  to  last  long.  At  a  quarter  before  three  o'clock 
the  struggle  would  be  over.  Yet  now,  at  the  very  last  moment, 
the  prize  which  trembled  before  them  eluded  the  grasp  of  the 
Erie  ring.  Their  opponent  was  not  saved,  but  they  shared  his 
disaster.  Their  combination  had  turned  on  the  fact,  disclosed 
to  them  by  the  Erie  books,  that  some  three  hundred  thousand 
shares  of  its  stock  had  been  issued  in  the  ten-share  certificates 
which  alone  are  transmitted  to  London.  This  amount  they 
supposed  to  be  out  of  the  country  ;  the  'balance  they  could 
account  for  as  beyond  the  reach  of  Drew.  Suddenly,  as  two 
o'clock  approached,  and  Erie  was  trembling  in  the  sixties,  all 
Broadway  —  every  tailor  and  bootmaker  and  cigar  vender  of 
New  York  —  seemed  pouring  into  Broad  Street,  and  each  new- 
comer held  eagerly  before  him  one  or  more  of  those  ten-share 
certificates  which  should  have  been  in  London.  Not  only  this, 
but  the  pockets  of  the  agents  of  foreign  bankers  seemed  burst- 
ing with  them.  Bedlam  had  suddenly  broken  loose  in  Wall 
Street.  It  was  absolutely  necessary  for  the  conspirators  to  ab- 
sorb this  stock,  to  keep  it  from  the  hands  of  Drew.  This  they 
attempted  to  do,  and  manfully  stood  their  ground,  fighting 
against  time.  Suddenly,  when  the  hour  had  almost  come,  — 
when  five  minutes  more  would  have  landed  them  in  safety,  — 
through  one  of  those  strange  incidents  which  occur  in  Wall 
Street  and  which  cannot  be  explained,  they  seemed  smitten  with 
panic.  It  is  said  their  bank  refused  to  certify  their  checks  for 
the  suddenly  increased  amount ;  the  sellers  insisted  on  having 
certified  checks,  and,  in  the  delay  caused  by  this  unforeseen 
difficulty,  the  precious  five  minutes  elapsed,  and  the  crisis  had 
passed.  The  fruits  of  their  plot  had  escaped  them.  Drew  made 
good  his  contracts  at  57,  the  stock  at  once  fell  heavily  to  42,  and 
a  dull  quiet  succeeded  to  the  excitement  of  the  morning.  The 
hand  of  the  government  had  made  itself  felt  in  Wall  Street. 

The  Broad  Street  conflict  was  over,  and  some  one  had  reaped 
a  harvest.  Who  was  it?  It  was  not  Drew,  for  his  losses,  apart 
from  a  ruined  prestige,  were  estimated  at  nearly  a  million  and 


50  ^^\lL\v.\^"  i^uonLK^rs 

a  half  of  dollars.  The  l^ie  clhvctors  were  not  the  fortunate 
men,  for  their  only  trophies  were  great  piles  of  certifieates  of 
Erie  stoek,  wliieh  hatleost  them  ''corner"  prices,  and  for  which 
no  demand  existed.  If  Drew's  loss  was  a  million  and  a  half, 
their  loss  was  likidy  to  he  nearer  three  millions.  Who,  then, 
were  the  recipients  of  these  missing  millions?  There  is  an 
ancient  saying,  which  seems  to  have  been  tolerably  verified  in 
this  case,  that  when  certain  persons  fall  out  certain  other  per- 
sons come  by  their  dues.  The  "  corner  "  was  very  beautiful  in 
all  its  details,  and  most  admirably  planned  ;  but,  unfortunately, 
those  wjio  engineered  it  had  just  previously  made  the  volume 
of  stock  too  large  for  accurate  calculation.  For  once  the  outside 
public  had  been  at  hand  and  Wall  Street  had  been  found  want- 
ing. A  large  portion  of  the  vast  sum  taken  from  the  combat- 
ants found  its  way  into  the  pockets  of  the  agents  of  English 
bankers,  and  a  part  of  it  was  accounted  for  by  them  to  their 
principals ;  another  portion  went  to  relieve  anxious  holders 
among  the  American  outside  public  ;  the  remainder  fell  to  pro- 
fessional operators,  probably  far  more  lucky  than  sagacious. 
Still,  there  had  been  a  fall  l)efore  there  was  a  rise.  The  sub- 
sequent disaster,  perhaps,  no  more  than  counterbalanced  the 
earlier  victory ;  at  any  rate,  INIessrs.  Gould  and  Fisk  did  not 
succumb,  but  preserved  a  steady  front,  and  Erie  was  more  upon 
the  street  than  ever.  In  fact,  it  was  wholly  there  now.  The 
recent  operations  had  proved  too  outrageous  even  for  the 
Brokers'  Board.  A  new  rule  was  passed,  that  no  stock  should 
be  called,  the  issues  of  which  were  not  registered  at  some 
respectable  banking-house.  The  Erie  directors  declined  to  con- 
form to  this  rule,  and  their  road  was  stricken  from  the  list  of 
calls.  Nothing  daunted  at  this,  these  Protean  creatures  at  once 
organized  a  new  board  of  their  own,  and  so  far  succeeded  in 
their  efforts  as  to  have  Erie  quoted  and  bought  and  sold  as 
regularly  as  ever. 

Though  the  catastrophe  had  taken  place  on  the  19th,  the 
struggle  was  not  yet  over.  The  interests  involved  were  so 
enormous,  the  developments  so  astounding,  such  passions  had 
been  aroused,  that  some  safety  valve  through  which  suppressed 


A  CHAPTER   OF   ERIE  51 

wrath  could  work  itself  off  was  absolutely  necessary,  and  this 
the  courts  of  law  afforded.  The  attack  was  stimulated  by  various 
motives.  The  bona  fide  holders  of  the  stock,  especially  the  for- 
eign holders,  were  alarmed  for  the  existence  of  their  property. 
The  Erie  ring  had  now  boldly  taken  the  position  that  their 
duty  was,  not  to  manage  the  road  in  the  interests  of  its  owners, 
not  to  make  it  a  dividend-paying  corporation,  but  to  preserve  it 
from  consolidation  with  the  Vanderbilt  monopoly.  This  policy 
was  openly  proclaimed  by  Mr.  Gould,  at  a  later  day,  before  an 
investigating  committee  at  Albany.  With  unspeakable  effront- 
ery, —  an  effrontery  so  great  as  actually  to  impose  on  his  audi- 
ence and  a  portion  of  the  press,  and  make  them  believe  that  the 
public  ought  to  wish  him  success,  —  he  described  how  stock 
issues  at  the  proper  time,  to  any  required  amount,  could  alone 
keep  him  in  control  of  the  road,  and  keep  Mr.  Vanderbilt  out 
of  it;  it  would  be  his  duty,  therefore,  he  argued,  to  issue  as 
much  new  stock,  at  about  the  time  of  the  annual  election,  as 
would  suffice  to  keep  a  majority  of  all  the  stock  in  existence 
under  his  control ;  and  he  declared  that  he  meant  to  do  this.  .  .  . 
The  strangest  thing  of  all  was,  that  it  never  seemed  to  occur  to 
his  audience  that  the  propounder  of  this  comical  sophistry  was 
a  trustee  and  guardian  for  the  stockholders,  and  not  a  public 
benefactor;  and  that  the  owners  of  the  Erie  Road  might  pos- 
sibly prefer  not  to  be  deprived  of  their  property,  in  order  to 
secure  the  blessing  of  competition.  So  unique  a  method  of  secur- 
ing a  reelection  was  probably  never  before  suggested  with  a  grave 
face,  and  yet,  if  we  may  believe  the  reporters,  Mr.  Gould,  in 
developing  it,  produced  a  very  favorable  impression  on  the  com- 
mittee. It  was  hardly  to  be  expected  that  such  advanced  views 
as  to  the  duties  and  powei'S  of  railway  directors  would  favorably 
impress  commonplace  individuals  who  might  not  care  to  have 
their  property  scaled  down  to  meet  Mr.  Gould's  views  of  public 
welfare.  These  persons  accordingly,  popularly  supposed  to  be 
represented  by  Mr.  Belmont,  wished  to  get  their  property  out 
of  the  hands  of  such  fanatics  in  the  cause  of  cheap  transporta- 
tion and  plentiful  stock,  with  the  least  possible  delay.  Com- 
bined with  these  were  the  operators  who  had  suffered  in  the  late 


52  l;  A  II. WAN     IMKU'.I.KMS 

"cHHiuT,"  ami  who  desired  to  liu^ht  for  better  terms  and  a  more 
ciiuul  ili vision  ot  plunder,  liehind  them  all,  Vanderbilt  was 
supposed  to  he  keeping  an  ea^er  eye  on  the  long-eoveted  Erie. 
Thus  tlu'  materials  for  litigation  existed  in  abundance. 

On  Monday,  the  23d,  Judge  Sutherland  vacated  Judge  Bar- 
nard's order  appointing  Jay  Gould  receiver,  and,  after  seven 
hours'  argument  and  some  exhibitions  of  vulgarity  and  inde- 
cency on  the  part  of  counsel,  which  vied  with  those  of  the  pre- 
vious April,  he  appointed  Mr.  Davies,  an  ex-chief-justice  of 
the  Court  of  Appeals,  receiver  of  the  road  and  its  franchise, 
leaving  the  special  terms  of  the  order  to  be  settled  at  a  future 
day.  The  seven  hours'  struggle  has  not  been  without  an  object; 
that  day  Judge  Barnard  had  been  peculiarly  active.  The  morn- 
ing hours  he  had  beguiled  by  the  delivery  to  the  grand  jury  of 
one  of  the  most  astounding  charges  ever  recorded ;  and  now,  as 
the  shades  of  evening  were  falling,  he  closed  the  labors  of  the 
day  by  issuing  a  stay  of  the  proceedings  then  pending  before  his 
associate.  .  .  .  Tuesday  had  been  named  by  Judge  Sutherland, 
at  the  time  he  appointed  his  receiver,  as  the  day  upon  which  he 
would  settle  the  details  of  the  order.  His  first  proceeding  upon 
that  day,  on  finding  his  action  stayed  by  Judge  Barnard,  was  to 
grant  a  motion  to  show  cause,  on  the  next  day,  why  Barnard's 
order  should  not  be  vacated.  This  style  of  warfare,  however, 
savored  altogether  too  much  of  the  tame  defensive  to  meet  suc- 
cessfully the  bold  strategy  of  Messrs.  Gould  and  Fisk.  They 
carried  the  war  into  Africa.  In  the  twenty-four  hours  during 
which  Judge  Sutherland's  order  to  show  cause  was  pending 
three  new  actions  were  commenced  by  them.  Tn  the  first  place, 
they  sued  the  suers.  Alleging  the  immense  injury  likely  to  result 
to  the  Erie  Road  from  actions  commenced,  as  they  alleged, 
solely  with  a  view  of  extorting  money  in  settlement,  Mr.  Belmont 
was  sued  for  a  million  of  dollars  in  damages.  Their  second  suit 
was  against  Messrs.  Work,  Schell,  and  others,  concerned  in  the 
litigations  of  the  previous  spring,  to  recover  the  -15429,250  then 
paid  them,  as  was  alleged,  in  a  fraudulent  settlement.  These 
actions  were,  however,  commonplace,  and  might  have  been 
brought  by  ordinary  men.    Messrs.  Gould  and  Fisk  were  always 


A  CHAPTEE   OF  EKIE  53 

displaying  the  invention  of  genius.  The  same  day  they  carried 
their  quarrels  into  the  United  States  courts.  The  whole  press, 
both  of  New  York  and  of  the  country,  disgusted  with  the  parody 
of  justice  enacted  in  the  State  courts,  had  cried  aloud  to  have 
the  whole  matter  transferred  to  the  United  States  tribunals,  the 
decisions  of  which  might  have  some  weight,  and  where,  at  least, 
no  partisans  upon  the  bench  would  shower  each  other  with  stays, 
injunctions,  vacatings  of  orders,  and  other  such  pellets  of  the 
law.  The  Erie  ring,  as  usual,  took  time  by  the  forelock.  While 
their  slower  antagonists  were  deliberating,  they  acted.  On  this 
Monday,  the  23d,  one  Henry  B.  Whelpley,  who  had  been  a 
clerk  of  Gould's,  and  who  claimed  to  be  a  stockholder  in  the 
Erie  and  a  citizen  of  New  Jersey,  instituted  a  suit  against 
the  Erie  Railway  before  Judge  Blatchford,  of  the  United  States 
District  Court.  Alleging  the  doubts  which  hung  over  the  va- 
lidity of  the  recently  issued  stock,  he  petitioned  that  a  receiver 
might  be  apj^ointed,  and  the  company  directed  to  transfer  into 
his  hands  enough  property  to  secure  from  loss  the  plaintiff  as 
well  as  all  other  holders  of  the  new  issues.  The  Erie .  counsel 
were  on  the  ground,  and,  as  soon  as  the  petition  was  read, 
waived  all  further  notice  as  to  the  matters  contained  in  it  ; 
whereupon  the  court  at  once  appointed  Jay  Gould  receiver,  and 
directed  the  Erie  Company  to  place  eight  millions  of  dollars  in 
his  hands  to  protect  the  rights  represented  by  the  plaintiff.  Of 
course  the  receiver  was  required  to  give  bonds  with  sufficient 
sureties.  Among  the  sureties  was  James  Fisk,  Jr.  The  bril- 
liancy of  this  move  was  only  surpassed  by  its  success.  It  fell 
like  a  bombshell  in  the  enemy's  camp,  and  scattered  dismay 
among  those  who  still  preserved  a  lingering  faith  in  the  virtue 
of  law  as  administered  by  any  known  courts.  The  interference 
of  the  court  was  in  this  case  asked  for  on  the  ground  of  fraud. 
If  any  fraud  had  been  committed,  the  officers  of  the  company 
alone  could  be  the  delinquents.  To  guard  against  the  conse- 
quences of  that  fraud,  a  receivership  was  prayed  for,  and  the 
court  appointed  as  receiver  the  very  officer  in  whom  the  alleged 
frauds,  on  which  its  action  was  based,  must  have  originated.  It 
is  true,  as  was  afterwards  observed  by  Judge  Nelson  in  setting 


51  KAll,\\A^    ria)r.ij<:i\rs 

it  usiile,  that  a  prima  f<i('lf  case,  for  the  apj)c)intinent  of  a  receiver 
'•  was  supposed  to  have  i)eoii  made  out,"  that  no  objection  to  the 
person  siigi;esteil  was  uuuU',  aiitl  I  hat  the  right  was  expressly 
reserved  to  other  [)arties  to  come  into  court,  with  any  allegations 
they  saw  iit  against  Receiver  (iould.  The  collusion  in  the  case 
was,  nevertheless,  so  evident,  the  facts  were  so  notorious  and  so 
a})parent  from  the  very  papers  before  the  court,  and  the  cliarac- 
ter  of  -ludge  Blatchford  is  so  far  above  suspicion,  that  it  is  hard 
to  believe  that  this  order  was  not  procured  from  him  b}^  sur- 
prise, or  through  the  agency  of  some  counsel  in  whom  he  reposed 
a  misplaced  coniidence.  The  Erie  ring,  at  least,  had  no  occa- 
sion to  be  dissatisfied  with  this  day's  proceedings. 

The  next  day  Judge  Sutlicrland  made  short  work  of  his 
brother  Barnard's  stay  of  proceedings  in  regard  to  the  Davies 
receivership.  He  vacated  it  at  once,  and  incontinently  pro- 
ceeded, wholly  ignoring  the  action  of  Judge  Blatchford  on  the 
day  before,  to  settle  the  terms  of  the  order,  which,  covering  as  it 
did  the  whole  of  the  Erie  property  and  franchise,  excepting  only 
the  operating  of  the  road,  bade  fair  to  lead  to  a  conflict  of  juris- 
diction between  the  State  and  Federal  courts. 

And  now  a  new  judicial  combatant  appears  in  the  arena.  It 
is  difficult  to  say  why  Judge  Barnard,  at  this  time,  disappears 
from  the  narrative.  Perhaps  the  notorious  judicial  violence  of 
the  man,  which  must  have  made  his  eagerness  as  dangerous  to 
the  cause  he  espoused  as  the  eagerness  of  a  too  swift  witness, 
had  alarmed  the  Erie  counsel.  Perhaps  the  fact  that  Judge 
Sutherland's  term  in  chambers  would  expire  in  a  few  days  had 
made  them  wish  to  intrust  their  cause  to  the  magistrate  who 
was  to  succeed  him.  At  any  rate,  the  new  order  staying  pro- 
ceedings under  Judge  Sutherland's  order  was  obtained  from 
Judge  Cardozo,  —  it  is  said,  somewhat  before  the  terms  of  the 
receivership  had  been  finally  settled.  The  change  spoke  well 
for  the  discrimination  of  those  who  made  it,  for  Judge  Cardozo  is 
a  very  different  man  from  Judge  Barnard.  Courteous  but  in- 
flexible, subtle,  clear-headed,  and  unscrupulous,  this  magistrate 
conceals  the  iron  hand  beneath  the  silken  glove.  Equally 
versed    in    the    laws   of    New   York    and   in   the   mysteries   of 


A  CHAPTER   OF  EEIE  55 

Tammany,  he  had  earned  his  place  by  a  partisan  decision  on  the 
excise  Uiw,  and  was  nominated  for  the  bench  by  Mr.  Fernando 
Wood,  in  a  few  remarks  concluding  as  follows  :  "  Judges  were 
often  called  on  to  decide  on  political  questions,  and  he  was 
sorry  to  say  the  majority  of  them  decided  according  to  their 
political  bias.  It  was  therefore  absolutely  necessary  to  look  to 
their  candidate's  political  principles.  He  would  nominate,  as  a 
fit  man  for  the  office  of  Judge  of  the  Supreme  Court,  Albert 
Cardozo."  Nominated  as  a  partisan,  a  partisan  Cardozo  has 
always  been,  when  the  occasion  demanded.  Such  was  the  new 
and  far  more  formidable  champion  who  now  confronted  Suth- 
erland, in  place  of  the  vulgar  Barnard.  His  first  order  in  the 
matter — to  show  cause  why  the  order  of  his  brother  judge 
should  not  be  set  aside  —  was  not  returnable  until  the  30th, 
and  in  the  intervening  five  days  many  events  were  to  happen. 

Immediately  after  the  settlement  by  Judge  Sutherland  of  the 
order  appointing  Judge  Davies  receiver,  that  gentleman  had 
proceeded  to  take  possession  of  his  trust.  Upon  arriving  at  the 
Erie  building,  he  found  it  converted  into  a  fortress,  with  a  sen- 
try patrolling  behind  the  bolts  and  bars,  to  whom  was  confided 
the  duty  of  scrutinizing  all  comers,  and  of  admitting  none  but 
the  faithful  allies  of  the  garrison.  It  so  happened  that  Mr. 
Davies,  himself  unknown  to  the  custodian,  was  accompanied 
by  Mr.  Eaton,  the  former  attorney  of  the  Erie  corporation.  This 
gentleman  was  recognized  by  the  sentry,  and  forthwith  the 
gates  flew  open  for  himself  and  his  companion.  In  a  few 
moments  more  the  new  receiver  astonished  Messrs.  Gould  and 
Fisk,  and  certain  legal  gentlemen  with  whom  they  happened 
to  be  in  conference,  by  suddenly  appearing  in  the  midst  of  them. 
The  apparition  was  not  agreeable.  Mr.  Fisk,  however,  with  a 
fair  appearance  of  cordiality,  welcomed  the  strangers,  and  shortly 
after  left  the  room.  Speedily  returning,  liis  manner  underwent 
a  change,  and  he  requested  the  newcomers  to  go  the  way  they 
came.  As  they  did  not  comply  at  once,  he  opened  the  door, 
and  directed  their  attention  to  some  dozen  men  of  forbidding 
aspect  who  stood  outside,  and  who,  he  intimated,  were  prepared 
to  eject  them  forcibly  if  they  sought  to  prolong  their  unwelcome 


50  KAIl.WA^     rKor.LKMS 

stay.  As  an  iiulieation  of  the  lengths  to  wliieh  Mr.  Fisk  was 
prepared  to  go,  this  was  sunit'ieiilly  sigiiilieaiit.  The  niove- 
ment,  howevi-r,  was  a  little  too  ia[)i(l  for  his  companions;  the 
lawyers  protested,  Mr.  (Jould  apologized,  Mr.  Fisk  cooled  tlown, 
and  his  familiars  retired.  The  receiver  then  proceeded  to  give 
written  notice  of  his  appoinlnient,  and  the  fact  that  Ik;  had 
taken  possession  ;  disreganling,  in  so  doing,  an  order  of  eludge 
("ardo/.o,  staying  proceedings  under  Judge  Sutherland's  order, 
which  one  of  the  opposing  counsel  drew  from  his  [)ocket,  but 
which  Mr.  Davies  not  inaptly  characterized  as  a  "•  very  singular 
order,"  seeing  that  it  was  signed  before  the  terms  of  the  order 
it  sought  to  affect  were  linally  settled.  At  length,  however,  at 
the  earnest  request  of  some  of  the  subordinate  officials,  and 
satislled  with  the  formal  possession  he  had  taken,  the  new 
receiver  delayed  further  action  until  Friday.  He  little  knew 
the  resources  of  his  opponents,  if  he  vainly  supposed  that  a 
formal  possession  signified  an3^thing.  The  succeeding  Friday 
found  the  directors  again  fortified  within,  and  himself  a  much 
enjoined  w\anderer  "without.  The  vigilant  guards  were  now  no 
longer  to  be  beguiled.  Within  the  building,  constant  discus- 
sions and  consultations  were  taking  place ;  without,  relays  of 
detectives  incessantly  watched  the  premises.  No  rumor  was  too 
wild  for  public  credence.  It  was  confidently  stated  that  the 
directors  were  about  to  fly  the  State  and  the  county,  —  that  the 
treasuiy  had  already  been  conveyed  to  Canada.  At  last,  late 
on  Sunday  night,  Mr,  Fisk  with  certain  of  his  associates  left 
the  building,  and  made  for  the  Jersey  Ferry ;  but  on  the  way 
he  was  stopped  by  a  vigilant  lawyer,  and  many  papers  were 
served  upon  him.  His  plans  were  then  changed.  He  returned 
to  the  office  of  the  company,  and  presently  the  detectives  saw 
a  carriage  leave  the  Erie  portals,  and  heard  a  loud  voice  order 
it  to  be  driven  to  the  Fifth  Avenue  Hotel.  Instead  of  going 
there,  however,  it  drove  to  the  ferry,  and  presently  an  engine, 
with  an  empty  directors'  car  attached,  dashed  out  of  the  Erie 
station  in  Jersey  City,  and  disappeared  in  the  darkness.  The 
detectives  met  and  consulted;  the  carriage  and  the  empty 
car  were  put  together,  and  the  inference,  announced  in  every 


A   CHAPTER   OF  ERIE  57 

New  York  paper   the  succeeding  day,   was   that  Messrs.    Fisk 
and  Gould  had  absconded  with  millions  of  money  to  Canada. 

That  such  a  ridiculous  story  should  have  been  published, 
much  less  believed,  simply  shows  how  utterly  demoralized  the 
j)ublic  mind  had  become,  and  how  prepared  for  any  act  of 
high-handed  fraud  or  outrage.  The  libel  did  not  long  remain 
uncontradicted.  The  next  day  a  card  from  Mr.  Fisk  was  tele- 
graphed to  the  newspapers,  denying  the  calumny  in  indignant 
terms.  The  eternal  steel  rails  were  again  made  to  do  duty,  and 
the  midnight  flitting  became  a  harmless  visit  to  Binghamton  on 
business  connected  with  a  rolling  mill.  Judge  Balcom,  how- 
ever, of  injunction  memory  in  the  earlier  records  of  the  Erie 
suits,  resides  at  Binghamton,  and  a  leading  New  York  paper 
not  inaptly  made  the  timid  inquiry  of  Mr.  Fisk,  "  If  he  really 
thought  that  Judge  Balcom  was  running  a  rolling  mill  of  the 
Erie  Company,  what  did  he  think  of  Judge  Barnard?"  Mr. 
Fisk,  however,  as  became  him  in  his  character  of  the  Maecenas 
of  the  bar,  instituted  suits  claiming  damages  in  fabulous  sums, 
for  defamation  of  character,  against  some  half  dozen  of  the  lead- 
ing papers,  and  nothing  further  was  heard  of  the  matter,  nor, 
indeed,  of  the  suits  either.  Not  so  of  the  trip  to  Binghamton. 
On  Tuesday,  the  1st  of  December,  while  one  set  of  lawyers 
were  arguing  an  appeal  in  the  Whelpley  case  before  Judge 
Nelson  in  the  Federal  courts,  and  another  set  were  procuring 
orders  from  Judge  Cardozo  staying  proceedings  authorized  by 
Judge  Sutherland,  a  third  set  were  aiding  Judge  Balcom  in 
certain  new  proceedings  instituted  in  the  name  of  the  Attorney- 
General  against  the  Erie  Road.  The  result  arrived  at  was,  of 
course,  that  Judge  Balcom  declared  his  to  be  the  only  shop 
where  a  regular,  reliable  article  in  the  way  of  law  was  retailed, 
and  then  proceeded  forthwith  to  restiain  and  shut  up  the  op- 
position establishments.  The  action  was  brought  to  terminate 
the  existence  of  the  defendant  as  a  corporation,  and,  by  way  of 
preliminary,  application  was  made  for  an  injunction  and  the 
appointment  of  a  receiver.  His  Honor  held  that,  as  only  three 
receivers  had  as  yet  been  appointed,  he  was  certainly  entitled  to 
appoint  another.    It  was  perfectly  clear  to  him  that  it  was  his 


58  lvAlL\\A\     rKOllLEMS 

duty  to  enjoin  tlu>  defondnnt  corporation  from  delivering  the 
jiDssession  of  iis  road,  or  of  any  of  its  assets,  to  either  of  the 
reeeivers  ahvatly  a[)|)(iiiitod :  it  was  rtiually  cliMr  that  the  eor- 
poration  wouhl  he  ohliged  to  deliver  them  to  any  reeeiver  he 
niiy^hl  a[»[)oint.  He  was  not  prepared  to  name  a  re(!eiver  just 
then,  however,  though  he  intinialcd  that  he  should  not  hesitate 
to  tlo  so  if  nei'essar3\  So  he  et)ntt'nted  himself  with  the  appoint- 
meut  of  a  referee  to  look  into  matters,  and,  generally,  enjoined 
the  directors  from  omitting  to  operate  the  road  themselves,  or 
from  delivering  the  possession  of  it  to  "  any  person  claiming  to 
be  a  receiver." 

This  raiding  upon  the  agricultural  judges  was  not  peculiar  to 
the  Erie  party.  On  the  contrary,  in  this  proceeding  it  rather 
followed  than  set  an  example  ;  for  a  day  or  two  previous  to 
Mr.  Fisk"s  hurried  journey,  Judge  Peckham  of  Albany  had, 
upon  papers  identical  with  those  in  the  Belmont  suit,  issued 
divers  orders,  similar  to  those  of  Judge  Balcom,  but  on  the 
other  side,  tying  up  the  Erie  directors  in  a  most  astonishing 
manner,  and  clearly  hinting  at  the  expediency  of  an  additional 
receiver  to  be  appointed  at  Albany.  The  amazing  part  of  these 
Peckham  and  Balcom  proceedings  is,  that  they  seem  to  have 
been  initiated  with  perfect  gravity,  and  neither  to  have  been 
looked  upon  as  jests,  nor  intended  by  their  originators  to  bring 
the  courts  and  the  laws  of  New  York  into  ridicule  and  contempt. 
Of  course  the  several  orders  in  these  cases  were  of  no  more  im- 
portance than  so  much  waste  paper,  unless,  indeed,  some  very 
cautious  counsel  may  have  considered  an  extra  injunction  or 
two  very  convenient  things  to  have  in  his  house  ;  and  yet,  curi- 
ously enough,  from  a  legal  point  of  view,  those  in  Judge  Bal- 
com's  court  seem  to  have  been  almost  the  only  properly  and 
regularly  initiated  proceedings  in  the  whole  case. 

These  little  rural  episodes  in  no  way  interfered  with  a  renewal 
of  vigorous  hostilities  in  New  York.  While  Judge  Balcom  was 
appointing  his  referee.  Judge  Cardozo  granted  an  order  for  a 
reargument  in  the  Belmont  suit,  —  which  brought  up  again  the 
appointment  of  Judge  Davies  as  receiver,  —  and  assigned  the 
hearing  for  the  6th  of  December.    This  step  on  his  part  bore  a 


A  CHAPTER  OF   ERIE  59 

curious  resemblance  to  certain  of  his  performances  in  the  noto- 
rious case  of  the  Wood  leases,  and  made  the  plan  of  operations 
perfectly  clear.  The  period  during  which  Judge  Sutherland 
was  to  sit  in  chambers  was  to  expire  on  the  4th  of  December, 
and  Cardozo  himself  was  to  succeed  him ;  he  now,  .therefore, 
proposed  to  signalize  his  associate's  departure  from  chambers  by 
reviewing  his  orders.  No  sooner  had  he  granted  the  motion, 
than  the  opposing  counsel  applied  to  Judge  Sutherland,  who 
forthwith  issued  an  order  to  show  cause  why  the  reargument 
ordered  by  Judge  Cardozo  should  not  take  place  at  once.  Upon 
which  the  counsel  of  the  Erie  Road  instantly  ran  over  to  Judge 
Cardozo,  who  vacated  Judge  Sutherland's  order  out  of  hand. 
The  lawyers  then  left  him  and  ran  back  to  Judge  Sutherland 
with  a  motion  to  vacate  this  last  order.  The  contest  was  now 
becoming  altogether  too  ludicrous.  Somebody  must  yield,  and 
when  it  was  reduced  to  that,  the  honest  Sutherland  was  pretty 
sure  to  give  way  to  the  subtle  Cardozo.  Accordingly  the  hear- 
ing on  this  last  motion  was  postponed  until  the  next  morning, 
when  Judge  Sutherland  made  a  not  undignified  statement  as  to 
his  position,  and  closed  by  remitting  the  whole  subject  to  the 
succeeding  Monday,  at  which  time  Judge  Cardozo  was  to  suc- 
ceed him  in  chambers.  Cardozo,  therefore,  was  now  in  undis- 
puted possession  of  the  field. 

******** 
It  was  now  very  clear  that  Receiver  Davies  might  abandon 
all  hope  of  operating  the  Erie  Railway,  and  that  Messrs.  Gould 
and  Fisk  were  borne  u[)on  the  swelling  tide  of  victory.  The 
prosperous  aspect  of  their  affairs  encouraged  these  last-named 
gentlemen  to  yet  more  vigorous  offensive  operations.  The  next 
attack  was  upon  Vanderbilt  in  person.  On  Saturday,  the  5th  of 
December,  only  two  days  after  Judge  Sutherland  and  Receiver 
Davies  were  disposed  of,  the  indefatigable  Fisk  waited  on  Com- 
modore Vanderbilt,  and,  in  the  name  of  tlie  Erie  Company,  ten- 
dered him  fifty  thousand  shares  of  Erie  common  stock  at  70.  .  .  . 
As  the  stock  was  then  selling  in  Wall  Street  at  40,  the  Commodore 
naturally  declined  to  avail  himself  of  this  lil)eral  offer.  He  even 
went  further,  and,  disregarding  his  usual  wise  policy  of  silence, 


60  KAILW.W     PKOl'.LKMS 

wrote  to  the  New  York  I'inies  a  sliort  eoiniiuinication,  in  whicli 
he  referred  to  the  alleged  terms  of  settlement  of  the  previous 
July,  so  far  as  they  coneerned  himstdf,  and  denied  them  in  the 
followiiit^  explicit  language:  "1  liave  had  no  dealings  with  tlie 
Erie  IJailway  C\)m{)any,  nor  have  I  ever  sold  that  eom})any  any 
stock  or  received  from  them  any  honus.  As  to  the  suits  insti- 
tuteil  l)y  Mr.  Schell  and  others,  1  had  nothing  to  do  with  them, 
nor  was  I  in  any  way  concerned  in  their  settlement."  This  was 
certaiidy  an  announcement  calculated  to  confuse  the  public ; 
but  the  confusion  became  confounded,  when,  upon  the  10th, 
i\lr.  Fisk  followed  him  in  a  card  in  wdiich  he  reiterated  the 
alleged  terms  of  settlement,  and  reproduced  tw^o  checks  of  the 
Erie  Company,  of  July  11,  1868,  made  payable  to  the  treasurer 
and  by  him  indorsed  to  C.  Vanderbilt,  upon  whose  order  they 
had  been  paid.  These  two  checks  were  for  the  sum  of  a  million 
of  dollars.  He  further  said  that  the  company  had  a  paper  in 
Mr.  Vanderbilt's  own  handwriting,  stating  that  he  had  placed 
fifty  thousand  shares  of  Erie  stock  in  the  hands  of  certain  per- 
sons, to  be  delivered  on  payment  of  $3,500,000,  which  sum  he 
declared  had  been  paid.  Undoubtedly  these  apparent  discrep- 
ancies of  statement  admitted  of  an  explanation  ;  and  some 
thin  veil  of  equivocation,  such  as  the  transaction  of  the  business 
through  third  parties,  justified  Vanderbilt's  statements  to  his  own 
conscience.  Comment,  however,  is  wholly  superfluous,  except 
to  call  attention  to  the  amount  of  Aveight  which  is  to  be  given 
to  the  statements  and  denials,  apparently  the  most  general  and 
explicit,  which  from  time  to  time  were  made  by  the  parties  to 
these  proceedings.  This  short  controversy  merely  added  a  little 
more  discredit  to  what  was  already  not  deficient  in  that  respect. 
On  the  10th  of  December  the  Erie  Company  sued  Commodore 
Vanderbilt  for  •'^•3,500,000,  specially  alleging  in  their  complaint 
the  particulars  of  that  settlement,  all  knowledge  of  or  connec- 
tion with  which  the  defendant  had  so  emphatically  denied. 

None  of  the  multifarious  suits  which  had  been  brought  as  yet 
were  aimed  at  Mr.  Drew.  The  quondam  treasurer  had  apparently 
wholly  disappeared  from  the  scene  on  the  19th  of  November. 
Mr.  Fisk  took  advantage,  however,  of  a  leisure  day,  to  remedy 
this  oversight,  and  a  suit  was  commenced  against  Drew,  on  the 


A  CHAPTEK   OF   ElilE  61 

ground  of  certain  transactions  between  him,  as  treasurer,  and  the 
railway  company,  in  relation  to  some  steamboats  concerned  in 
the  trade  of  Lake  Erie.  The  usual  allegations  of  fraud,  breach  of 
trust,  and  other  trifling  and,  technically,  not  State  prison  offences, 
were  made,  and  damages  were  set  at  a  million  of  dollars. 
******** 

It  was  not  until  the  10th  of  February  that  Judge  Cardozo 
published  his  decision  setting  aside  the  Sutherland  receivership, 
and  establishing  on  a  basis  of  authority  the  right  to  overissue 
stock  at  pleasure.  The  subject  was  then  as  obsolete  and  for- 
gotten as  though  it  had  never  absorbed  the  public  attention. 
And  another  "settlement"  had  already  been  effected.  The 
details  of  this  arrangement  have  not  been  dragged  to  light 
through  the  exposures  of  subsequent  litigation.  But  it  is  not 
difficult  to  see  where  and  how  a  combination  of  overpowering 
influence  may  have  been  effected,  and  a  guess  might  even  be 
hazarded  as  to  its  objects  and  its  victims.  The  fact  that  a 
settlement  had  been  arrived  at  was  intimated  in  the  papers 
of  the  26th  of  December.  On  the  19th  of  the  same  month  a 
stock  dividend  of  eighty  per  cent  in  the  New  York  Central  had 
been  suddenly  declared  by  Vanderbilt.  Presently  the  legislature 
met.  While  the  Erie  ring  seemed  to  have  good  reasons  for 
apprehending  hostile  legislation,  Vanderbilt,  on  his  part,  might 
have  feared  for  the  success  of  a  bill  which  was  to  legalize  his 
new  stock.  But  hardly  a  voice  was  raised  against  the  Erie  men, 
and  the  bill  of  the  Central  was  safely  carried  through.  This 
curious  absence  of  opposition  did  not  stop  here,  and  soon  the 
two  parties  were  seen  united  in  an  active  alliance.  Vanderbilt 
wanted  to  consolidate  his  roads ;  the  Erie  directors  wanted  to 
avoid  the  formality  of  annual  elections.  Thereupon  two  other 
bills  went  hastily  through  this  honest  and  patriotic  legislature, 
the  one  authorizing  the  Erie  board,  which  had  been  elected 
for  one  year,  to  classify  itself  so  that  one  fifth  only  of  its  mem- 
bers should  vacate  office  during  each  succeeding  year,  the 
other  consolidating  the  Vanderbilt  roads  into  one  colossal 
monopoly.  Public  interests  and  private  rights  seem  equally  to 
have  been  the  victims. 


II 

EAULY   A.MKKICAN    (( )Nl)rri()NS  i 

TT"^lIA'r  lia[)pene(l  in  Micliio-au  was  typical  of  tlio  wliole 
'  '  wcstcni  situation.  In  tlic  early  days  of  its  statehood  it 
had  phuuu'd  and  [)artly  bniU  two  Hnes  of  railroad  across  its  lower 
peninsuhi,  from  east  to  wt'st.  So  severely,  however,  was  the  state 
sliaken  by  tlie  panic  that  in  spite  of  its  heroic  efforts  to  meet  its 
ohHt^ations  the  word  Michigan  became  a  scarecrow  to  eastern 
capital.  As  the  years  went  on  and  there  proved  to  be  no  possi- 
bility of  completing  the  roads  or  even  of  procuring  the  money 
necessary  to  keep  them  in  repair,  it  grew  plain  that  the  state 
must  get  rid  of  them.  One,  the  INIichigan  Central,  one  hundred 
and  forty-five  miles  long,  ran  from  Detroit  to  Kalamazoo.  The 
other,  the  Michigan  Southern,  also  ran  nowhere,  but  achieved 
the  same  result  with  less  effort,  being  only  seventy-five  miles 
long.  The  roads  together  had  cost  13,500,000.  Accordingly, 
placing  its  dilapidated  property  on  the  bargain-counter,  the  state 
waited  for  customers. 

At  last,  in  1845,  the  railroads  attracted  the  attention  of  two 
young  men,  both  easterners  who  had  gone  West,  and  both  per- 
suaded not  only  that  the  day  of  prosperity  for  the  West  was 
about  to  dawn,  but  that,  if  the  right  means  were  taken,  eastern 
capital  could  be  brought  to  look  upon  a  western  road  with 
favor.  One  of  the  men  was  James  F.  Joy,  a  graduate  of  Dart- 
mouth College  and  the  Harvard  Law  School,  who  had  come  to 
Detroit  and  was  waiting  for  his  practice  to  grow.  The  other  was 
John  W.  Brooks,  the  superintendent  of  the  Auburn  and  Roches- 
ter liailroad  in  New  York.  They  believed  that  if  the  Michigan 
Central  could  be  rehabilitated  and  completed  for  the  remain- 
ing third  of  the  distance  to  Lake  Michigan,  it  would  prove  a 
profitable  investment.    It  would  open  up  the  rich  farming  land  of 

1  From  An  American  Railroad  Builder  :  John  Murray  Forbes,  by  Henry  G. 
Pearson,  Boston,  1911.    By  permission. 

62 


EARLY  AMERICAN  CONDITIONS  63 

Michigan ;  better  still,  it  would  constitute  a  link  in  the  shortest 
route  from  the  East  to  Chicago  and  the  Mississippi  Valle3^  At 
that  time  the  traveller  left  the  cars  at  Buffalo,  where  he  took  a 
steamer  which  conveyed  huu,  by  the  roundabout  way  of  Lake 
Huron  and  the  Straits  of  Mackinaw,  to  the  head  of  Lake  Mich- 
igan. If  he  had  good  luck,  his  boat  reached  Chicago  in  four 
days  and  a  half ;  not  infrequently  six  days  were  needed.  With 
the  railroad  completed  across  Michigan,  the  time  from  Buffalo 
could  be  reduced  to  thirty-six  hours.  Of  course.  Brooks  reasoned, 
it  was  conceivable  that  as  years  went  on  a  railroad  might  be 
built  along  the  southern  shore  of  Lake  Erie  to  Toledo,  and  from 
there  to  Chicago ;  but  the  cost  of  such  an  undertaking  would  be 
so  stupendous  and  the  returns  so  uncertain  that  he  dismissed 
the  possibility  from  his  calculations.  The  Michigan  Central  was, 
it  is  true,  a  railroad  in  the  wilderness ;  nevertheless  its  strategic 
position  was  such  that  it  could  hold  its  own  agamst  the  circuitous 
water  route.  With  eastern  capital  and  eastern  control,  it  was 
practically  certain  to  succeed.  Filled  with  this  conviction  Brooks, 
then  twenty-six  years  old,  set  forth  in  the  winter  of  1845-46  to 
make  the  acquamtance  of  men  of  means  in  Boston  and  New  York 
in  the  hope  of  interesting  them  in  his  scheme. 

Good  luck  led  Brooks,  in  the  course  of  his  labors,  to  the 
counting-room  of  John  M.  Forbes.  Forbes  had  already  made 
experiments,  most  of  them  financially  unsuccessful,  in  the  appli- 
cation of  steam  to  ocean  transportation ;  ^  but  he  was  ready  to 
listen  to  possibilities  more  promising  in  connection  with  steam 
transportation  on  land.  In  those  days,  of  course,  there  was  no- 
where any  expert  knowledge  of  railroading ;  yet,  judged  even 
by  the  standards  of  that  time,  his  notions  of  the  problems  of 
railroad  management  were,  as  he  took  delight  in  recalling  in 
later  years,  naively  rudimentary.     He  reasoned,  for  example, 

1  For  the  most  part  the  vessels  used  steam  only  as  auxiliary  power,  having 
hinged  propeller-shafts,  by  means  of  which,  in  good  sailing  weather,  the  pro- 
peller could  be  turned  up  out  of  harm's  way.  The  Midas,  built  and  owned  by  the 
Forbes  brothers,  was  the  first  steamer  to  navigate  Chinese  waters  ;  the  Massa- 
chusetts was  one  of  the  earliest  ocean  steamers  on  the  Atlantic.  The  Iron  Witch, 
an  iron  paddle-wheel  steamer,  designed  for  fast  service  on  the  Hudson,  was  an 
expensive  failure. 


64  i;ail\\a\    I'Koi-.i.i^.ms 

that  in  all  [uolialiililv  tlic  lu'i'sidciicy  ol  a  I'aili'oad  coiujiaiiy  was 
liki'  thai  t»t'  an  iiisuraiici'  i(>iii[taiiv,  a  (iij^iiilicd  (il'licc  which,  at 
that  timi',  was  j^ivi'ii  to  "  lioiiost  and  ivlial)K'  though  unsiU'iH'sst'nl 
nu'ichants/'  tlu*  work  hciiiy"  done  by  a  socrctaiv.  Such  a  [)()sition 
lu'  wished  to  liiid  tor  his  elder  brother  lU'iiiiet,  whose  darinsj;  and 
brilliant  career  as  a  sea  c-aptain  had  not  proved  the  best  prepara- 
tion lor  success  in  mercantile  ait'airs. 

Prawn  on  partly  by  this  fraternal  motive  and  paitly  by  the 
I'ascination  ot"  thu  enterprise  itself,  Forbes  went  so  far  as  to 
employ  Daniel  Webster  to  draft  a  charter  embodying  the  wis- 
dom that  had  been  gleaned  from  eastern  railroad  experience, 
anil  to  seutl  IJrooks  back  to  Michigan  to  secure  the  passage  of 
the  charter  by  the  legislature. 

The  discussion  of  this  bill,  with  its  inomcnitous  consequences 
to  the  exhausted  treasury  of  JNlichigan,  was  naturally  the  chief 
event  of  the  legislative  session  of  IH-ftn  JJut  so  ignorant  were 
both  the  public  at  large  and  the  legislators  themselves  concernuig 
railroad  charters  that  the  point  on  which  local  interest  centred 
was  the  danger  that  the  pagan  capitalists  of  the  East  should 
attempt  to  run  trains  "  on  the  Sabbath  "  ;  and  every  day  peti- 
tions bearing  on  this  point  w^ere  presented.  When,  however,  the 
time  came  for  voting  on  this  secticm,  amendments  were  offered 
requirmg  that  the  corporation  should  observe  the  other  nine  com- 
mandments also,  and  that  the  directors  should  attend  church 
at  least  twice  every  Sunday,  and  the  section  w^as  laughed  to  de- 
feat.^ The  true  guardian  of  the  state's  interests  proved  to  be 
the  governor,  Alpheus  Felch,  an  able  and  honest  executive,  who 
more  than  once  during  this  session  had  to  restrain  the  legislature 
from  giving  away  to  corporations  the  property  of  the  people. 
Tlius  the  charter  as  passed  retained  for  the  state  a  measure  of 
legislative  supervision  and  control.^    Yet  even  so,  Brooks  and 

1  Journal  of  the  Senate  of  Michigan,  1846,  pp.  274,  275. 

2  By  the  act  of  incorporation  (Laws  of  Micliigan,  1846,  pp.  .37-64)  the  Mich- 
igan Central  Kailroad  \va.s  granted  the  property  of  the  road  forever ;  but  the 
state  might  repurchase  it  after  a  lapse  of  twenty  years,  and  after  thirty  years 
the  legislature  might  alter,  amend,  or  repeal  the  charter.  For  the  first  four 
years  the  road  was  to  pay  a  tax  of  one-half  of  one  per  cent,  after  that,  of 
three-fourtlis  of  one  per  cent  on  the  capital  stock  and  loans  for  construction 


EARLY  AMERICAN  CONDITIONS  65 

Jo}^  knew  that,  with  the  price  of  the  road  fixed  at  -^2,000,000, 
tliey  had  not  the  worst  of  the  bargain. 

Everything  now  depended  on  the  skill  and  force  of  the  man 
who  took  hold  of  the  financiering.  Boston  capital,  which  had 
been  principally  invested  in  the  Chma  trade,  was  now  begmning 
to  be  put  into  mills  in  Massachusetts  and  New  Hampsliire  and 
into  short  lines  of  railroad  along  the  Atlantic  coast.  In  New 
IJedford,  owing  to  the  decline  in  profits  from  the  whaling  in- 
dustry, there  was  also  a  considerable  amount  of  capital  that 
might  be  drawn  into  new  projects.  Tlirough  family  connections 
in  these  two  cities  Forbes  could  make  a  good  begmning,  and  m 
New  York  he  got  a  large  measure  of  help  from  his  former  part- 
ner m  China,  John  C.  Green.  Moreover,  he  was  sure  of  aid  from 
the  forlorn  holders  of  Micliigan  bonds  and  internal-improvement 
warrants,  who  were  only  too  glad  to  jump  from  their  present  fire 
into  the  frying-pan  of  railroad  stocks.  As  one  person  after  an- 
other looked  into  the  facts  about  this  worn-out  raiboad  in  the 
wilderness,  it  became  plain  that  it  was,  indeed,  a  bargam.  Brooks's 
report  showed  that  there  had  been  an  increase  of  one  hundred 
per  cent  in  the  receipts  within  the  past  year,  and  there  was  every 
prospect  of  even  more  satisfactory  returns  when  the  road  should 

purposes.  Its  annual  report  to  the  secretary  of  the  state  was  to  contain  tables 
showing  its  financial  condition,  its  physical  condition,  and  the  amount  and 
character  of  its  business.  The  amount  of  the  capital  stock  was  set  at  five 
million  dollars,  with  permission  to  increase  it  to  eight  million. 

The  rates  existing  under  state  management  were  to  continue  in  force  until 
July  1,  1848,  from  which  time  a  reduction  of  twenty-five  per  cent  was  to  be 
made  on  flour  and  grain  ;  the  tariff  for  no  article  was  to  be  higher  than  the 
average  of  the  tariffs  charged  for  that  article  on  the  Boston  and  Lowell,  the 
Boston  and  Providence,  and  the  Boston  and  Worcester  railroads,  during  Se]3- 
tember  and  October  of  1845.  An  exception  might  be  made  if  the  secretary  of 
state  of  Michigan,  the  auditor,  and  the  attorney-general  gave  their  consent. 
There  was  provision  for  a  commission  to  determine  what  was  the  average  rate 
on  the  New  England  railroads,  and  in  case  of  disagreement  a  final  decision  was 
to  be  rendered  by  the  court  of  chancery.  Furthermore,  not  oftener  than  once 
in  ten  years  the  legislature  might  require  such  a  commission  to  review  all  the 
rates  of  the  road.  The  road  was  required  to  "  transport  merchandise  and  prop- 
erty .  .  .  without  showing  partiality  or  favor,  and  with  all  practical  despatch." 
The  maxinmm  passenger  tariff  was  fixed  at  three  cents  per  mile.  No  publica- 
tion of  rates  was  required;  nev(;rtheless,  for  eight  years,  from  1850  to  1857 
inclusive,  these  schedules  were  given  in  tliu  annual  report  of  the  railroad. 


66  i;ail\\a\    1'i:<ii;lk.ms 

Ih»  built  across  the  state  and  proporly  oqnippod.  Finally,  there 
\vju>  the  cussunuu'o  that  it  was  to  he  controlli'd  by  eastern  capi- 
talists of  proved  honesty  and  ahility.  A(l\  aiitau^cs  such  as  these 
did  not  suffer  when  presented  by  a  man  like  Forbes,  who  had 
vision,  will,  and  above  all  the  faculty  of  "pitching  in";  and  as 
the  six  months  allowed  for  the  formation  of  the  company  drew 
to  an  end,  his  tense  and  tireless  efforts  brought  success.  "  I  shall, 
I  hope,"  he  wrote  when  it  was  all  over,  "  have  cause  to  look 
back  upon  this  September  as  one  of  the  best  spent  months  of 
my  life."    lie  had,  hideed,  opened  the  door  upon  his  true  career. 

On  September  23,  184(3,  the  Michigan  Central  Railroad  took 
possession  of  its  property.  Forbes  was  president,  having  con- 
sented to  take  the  office  only  because  lie  found  that  otherwise 
the  necessary  capital  could  not  be  secured ;  but  he  arranged  to 
put  the  burden  of  his  work  on  the  treasurer,  George  B.  Upton, 
to  whom  he  made  over  his  salar)\  John  W.  Brooks,  at  Detroit, 
was  to  have  charge  of  the  running  of  the  road. 

Promising  as  were  the  prospects  of  the  Micliigan  Central,  the 
road  itself,  as  Brooks's  rej)ort  made  clear,  was  a  shabby  piece  of 
property.  The  one  hundred  and  forty-five  miles  of  track  from 
Detroit  to  Kalamazoo  were  in  bad  condition,  and  fifty-six  miles 
more  were  needed  to  complete  the  line  to  the  nearest  point  on 
Lake  Michigan.  There  were  only  four  passenger  "  depots  "  along 
the  line,  and  at  Detroit  nothing  but  a  small  freight  depot  and 
an  engine-house,  both  inconveniently  situated  at  some  distance 
from  the  water  front.  The  value  of  the  rolling  stock  was  i68,000, 
the  largest  single  item  being  -$4000  for  a  locomotive  of  twelve  tons. 

The  track,  like  that  of  all  early  railroads,  consisted  of  beams 
of  wood  six  inches  square,  to  which  were  fastened  strips  of  iron 
half  an  inch  thick  by  two  and  a  quarter  inches  wide.  The  beams 
were  fastened  to  cross-ties  laid  tlu-ee  feet  apart,  which  in  turn 
were  laid  upon  under-sills,  "  the  wdiole  being  supported  upon 
short  blocks  of  different  lengths,  varying  according  to  the  dis- 
tance between  the  l)ottom  of  the  under-sills  and  a  firm  founda- 
tion." 1    On  the  first  thirty  miles  out  of  Detroit  the  wooden  part 

1  Brooks's  Report  upon  the  Merits  of  the  Michigan  Central  Railroad  as  an 
Investment  for  Eastern  Capitalists,  p.  4. 


EAELY   AMERICAA^   CONDITIONS  67 

of  the  track,  which  had  been  in  use  for  eiglit  years,  had  never 
been  renewed,  and  was  naturally  much  decayed.  The  iron,  worn 
out  and  broken,  curved  up  at  the  ends ;  and  when  one  of  these 
up-springing  pieces  thrust  itself  through  the  floor  of  the  car 
between  the  feet  of  a  passenger,  it  was  expressively  known  as 
a  "  snake-head."  Such  a  form  of  track,  best  described  by  the 
phrase  "  a  barrel-hoop  tacked  to  a  lath,"  was  already  passing ; 
and  the  charter  of  the  new  company  required  the  road  to  be  laid 
with  a  heavy  H  rail  of  iron,  weighing  sixty  pounds  a  yard.^ 

When  the  dh-ectors  held  their  first  annual  meeting  at  Detroit 
in  June,  1847,  the  road  had  already  proved  prosperous  enough 
to  justify  them  in  beginning  at  once  to  build  toward  Lake  Michi- 
gan. They  accordingly  sanctioned  expenditures  amounting  to 
over  two  million  dollars,  which  should  give  them  a  road  fully 
equipped  to  handle  its  rapidly  growing  business.  The  actual 
cost,  it  may  be  added,  was  more  than  four  million  dollars. 

It  was  at  the  time  of  this  meetmg  that  Forbes  and  some  of 
his  associates  received  their  first  lesson  in  practical  railroading. 
They  travelled  on  the  road,  explored  so-called  harbors  on  Lake 
Michigan  in  the  search  for  a  western  terminus,  went  on  to  Chi- 
cago, and  returned  by  steamer  tlu-ough  the  Straits  of  Mackinaw. 
Forbes,  a  born  traveller,  with  a  keen  eye  and  a  zest  for  every 
experience,  described  the  trip  in  a  journal  letter  to  his  wife,  which 
deserves  a  place  here  for  the  picture  it  gives  of  the  rawness  of 
the  country  which  the  railroad  was  to  do  so  much  to  develop. 

Steamer  Empire,  Mackinaw,  June  11,  1847 
We  reached  Detroit  1.30  in  the  night  and  landed  in  the  mud,  slept  an 
hour  or  two,  and  had  to  get  up  and  go  to  find  T.  Howe ;  Brooks,  our  main- 
stay, having  gone  West.    We  decided  to  follow,  and  started  at  eight  or  so 
on  our  railroad.  .  .  . 

For  the  first  few  miles  the  country  was  dreary ;  flat,  with  a  great  deal 
of  surface  water,  thi'ough  forests  mostly,  but  dense  and  melancholy  ones, 
water  under  foot  and  huge  decaying  ti-ees  lyin^  about ;  the  trees  generally 
tall  and  with  no  foliage  until  near  the  top. 

We  found  the  road  in  a  most  deplorable  condition,  the  iron  broken 
up  often  into  pieces  not  a  foot  long,  and  sometimes  we  could  not  see  any 

^  The  present  weiglit  of  the  heaviest  steel  rails  is  more  than  one  hundred 
pounds  a  yard. 


OS  KAll.W   \\     l'i;»)r.LKMS 

irt>ii  for  soini"  fft-t,  only  wiuul;  in  oilier  iihiccs  short  iiicccs  of  ii-oii,  almost 
atliwartsliips.  Imt  our  lu'oti'ctioii  was  in  its  hciiij;'  so  slioi-t  tliat  no  siiake- 
licails  could  reach  the  cars.  This  bad  rond  lasted  about  c'ij;hty  miles,  the 
bad  country  about  thirty,  when  we  came  to  a  little  drier  soil  and  passed 
throuL;^h  several  llourishini;  villages. 

Here  wo  began  to  see  the  famous  oak  oiienings, —  uolile  oak  tn'es  just 
far  enough  apart  to  let  each  take  its  haiulsonu,'  natural  siiape,  just  as  a  ]>ark 
slioidd  be  ;  but,  sad  to  tell,  W'O  sehlom  saw  the  openings  in  their  beauty,  for 
the  trees  luul  generally  been  girdled  and  stood  naked  and  dead  (some  of 
them  dying,  having  been  cut  this  year),  and  line  lield.s  of  wheat  growing 
right  ujt  to  their  trunks,  and  iield.s  varying  in  .size  from  twenty  to  two  liun- 
dred  acres  each;  but  few  flowers  to  be  seen,  and  the  houses  far  from  our 
New  England  houses  in  neatness.  At  night  we  reached  a  dirty  country 
tavern  at  Kalamazoo,  where  the  road  terminates.  .  .  . 

At  K.  we  found  Brooks  w'as  gone  to  Niles ;  and  we  resolved  to  follow 
him,  and  arranged  to  start  with  a  baronche  and  four  horses  at  4  a.m.  We 
sat  up  till  half-past  eleven  talking  with  our  engineers,  whom  we  sent  for 
to  get  information  from  them  about  our  routes,  and  then  turned  in.  In  an 
hour  Brooks  arrived,  and  came  to  my  I'oom,  and  after  one  hour's  talk  w(! 
decided  to  take  him  with  lis  and  push  for  the  celebrated  city  of  St.  Joseph, 
fifty-six  miles  di.stant,  which  we  accordingly  did  at  i  a.m.  With  few  ex- 
ceptions, our  ride  was  like  that  of  the  day  before,  the  roads  execrable,  full 
of  deep  holes  and  gullies,  where  we  had  a  right  to  expect  a  capsize ;  but 
the  weather  was  lovely  beyond  measure,  and  on  the  whole  we  enjoyed  our 
drive,  excepting  that,  not  daring  to  drink  the  water,  our  tongues  were 
parched  like  fever  patients. 

At  four  we  reached  the  marsh  wliich  surrounds  St.  .Joseph.  Figure  to 
yourself  a  pestilential  black  mud,  quivering  and  shaking  under  its  own 
W'eight,  with  tufts  of  grass,  rank  and  uneven,  a  deep  river  in  the  midst,  and 
sand-banks  where  the  mud  ceases.  .  .  .  Rising  up  from  this  was  a  steep 
but  small  bluff,  extending  into  the  lake,  on  which  the  city  stands.  Two 
handsome  houses  built  in  18;57,  and  I  believe  now  empty,  two  large  wooden 
taverns,  one  now  untenanted,  and  a  few  other  indifferent  looking  palaces, 
with  some  stray  houses  along  the  river,  complete  the  coup  d'ui'd  of  this 
famous  city,  which  sprung  uj)  in  a  night  and  withered  next  day.  The  only 
pleasant  thing  was  the  fine  view  of  Lake  Michigan,  blue,  like  the  ocean, 
and  wide. 

We  started  out  to  make  our  observations,  accompanied  by  pretty  much 
all  the  town,  some  half-doze*n  people,  who  took  care  we  should  not  be  alone 
a  moment  for  fear  we  should  not  appreciate  fully  the  beauties  of  the  place. 
We  went  over  to  Uncle  Sam  Russell's  "  Eden,"  w^hich  has  a  fine  map  of 
land  laid  out  into  cities,  and  is  called  North  St.  Joseph.  Drifting  sand 
near  the  lake  and  the  aforesaid  marsh  in  shore.  Nothing  would  induce  nie 
to  visit  this  place  again,  unless  I  could  carry  ]\Ir.  Russell  with  me  and 
witness  his  first  interview  with  his  domain. 


EAliLY  AMEKICAN   COXDITIOXS  69 

June  12 
.  .  .  We  left  [St.  Joseph]  on  Sunday  a.m.  for  Niles,  2G  miles,  and  arrived 
there  to  dinner ;  the  country  dull  for  12  miles,  then  tolerable.  .  .  .  We 
started  at  7  along  the  lake  shore  for  Michigan  City ;  a  beautiful  day,  the 
lake  just  like  the  ocean,  plenty  of  deer  ti-acks.  Got  there  at  11  and  exam- 
ined the  harbor  to  our  satisfaction,  and  at  2  p.m.  embarked  in  the  steamer 
for  Chicago,  taking  leave  of  Brooks  who  was  bound  back  to  Detroit.  Found 
]\lr.  Ogden  [William  B.  Ogdeu,  first  Mayor  of  Chicago]  on  board,  a  very 
agreeable  man  who  came  to  Chicago  12  years  ago,  when  it  was  a  wilder- 
ness, and  now  there  are  15,000  to  20,000  people  there.  Arrived  at  Chicago 
at  5  P.M.  —  hotter  than  Tophet.  Established  ourselves  at  an  immense  hotel, 
and  the  pangs  of  thirst  being  unbearable,  we  here  broke  into  lake  water 
astonishingly,  and  happily  without  bad  effect.  Mr.  Ogden  came  for  us  at 
6  or  7  in  his  carryall,  and  took  us  to  drive  about  the  town.  Some  of  the 
houses  are  on  a  bluff  (like  that  at  Brooklyn)  looking  out  on  the  blue  lake, 
and  it  was  lovely  at  sunset  beyond  imagination ;  few  trees,  however,  and 
the  ground  under  foot  dampish,  being  called  "  Wet  Prairie."  Mr.  O.  offered 
to  drive  us  next  day  to  the  "  Grand  Prairie,"  20  miles  distant,  but  the  roads 
were  bad,  the  weather  hot,  and  after  a  week's  train  we  did  not  think 
it  worth  while. 

Ogden's  attentions,  it  soon  appeared,  were  by  way  of  inducing 
the  eastern  capitalists  to  buy  laud  for  wliicli  he  was  the  agent. 
The  "  wet  prairie,"  witliin  a  mile  of  the  hotel,  he  offered  at 
fl.25  an  acre.  "Sheltered  by  our  absurd  prejudices  against 
land,"  wrote  Forbes  thirty-five  years  later,  "  we  were  proof 
against  Ogden's  seductions,  and  I  do  not  think  any  of  us  ever 
bought  a  foot  of  land  in  Cliicago  for  ourselves  while  the  road 
was  in  course  of  construction.  My  hotel  bill  of  one  hundred  and 
twenty-five  dollars  would  have  bought  one  hundred  acres,  now 
worth  18,000,000  to  $12,000,000." 

This  rawness  of  the  land  wliich  the  Michigan  Central  was  to 
serve  was  matched  by  the  mexperience  of  the  settlers  m  the 
obligations  of  a  railroad  public.  Having  had  things  pretty  mucli 
their  own  way  in  the  days  when  the  road  belonged  to  the  state, 
they  did  not  take  kindly  to  the  regulations  that  were  necessary 
to  put  the  road  on  a  business  basis.  The  turbulent  element 
which  is  found  m  every  frontier  community,  being  here  well 
organized  and  determined  to  rule  or  ruin,  precipitated  a  fierce 
struggle  which  was  the  precursor  of  the  granger  difficulties  of 
later  decades. 


70  KAll.W.W     I'Kor.LKMS 

In  tlu>  early  days  of  ilir  road  the  locoinotivos  liad  proceeded 
with  surh  ohli^iiiL;'  caulioii  tluit  livc-sUK'k  could  browse  between 
tlu"  rails  in  entire  sat't'ty.  Naturally,  when  under  the  new  maii- 
anenu'ut  the  speed  was  accelerated,  with  the  consequent  destruc- 
tion of  cattle,  the  outcry  was  at  first  great.  But  the  balm  of 
damages  easily  obtaineil  opened  the  eyes  of  the  settlers  to  new 
tactics,  and  soon  they  took  their  pigs  to  the  railroad  track  as  to 
a  market.  As  a  counter  move,  when  the  line  of  track  had  been 
properly  fenced  in,  Brooks  issued  notice  to  the  effect  that  here- 
after the  road  would  pay  only  one-half  the  value  of  any  animal 
killed.  The  contest  was  then  joined.  Trains  found  their  progress 
blocked  by  logs  on  the  track,  and  on  grades  the  rails  were  often 
greased,  so  that  the  passengers  had  to  get  out  and  work  their 
passage.  In  his  Remuiiscences  Forbes  tells  the  story  of  the 
struggle. 

In  the  country  next  west  of  Detroit  the  lawbreakers  were  so  strong  that 
it  was  said  no  judge  or  jury  dared  to  convict  any  of  the  prominent  men 
among  them ;  and  it  was  soon  evident  that  here  was  the  battle-ground 
between  order  and  disorder.  INIr.  Brooks  at  once  took  his  measures  with 
his  characteristic  foresight  and  decision.  When  almost  powerless,  he  main- 
tained the  best  truce  iwssible,  protecting  his  pro2:)erty  and  trade  by  special 
police  raised  from  his  own  men,  and  usually  running  a  hand  car  ahead  of 
every  train,  as  I  remember  was  still  done  the  first  time  my  wife  and  I  went 
over  the  railroad.  But  Brooks  laid  his  jilans  for  more  thoroiigh  work.  His 
shrewd  lawyer  sent  on  colonists  to  settle  on  the  line  of  road  in  that  county 
as  farmerp,  and  at  the  same  time  to  get  evidence  against  the  conspirators, 
who  had  determined  either  to  destroy  or  control  our  road.  He  also  quietly 
took  measures  to  get  the  legislature  to  change  the  general  law,  so  that 
criminals  could,  when  circumstances  justified  it,  be  tried  in  counties  other 
than  those  in  which  their  offences  were  committed.  While  thus  accumu- 
lating evidence  and  getting  ready  for  enforcing  his  rights,  he  went  on 
extending  and  rebuilding  the  road  with  vigor.  The  conspirators  were  led 
by  a  man  named  Fitch,  supposed  to  be  quite  rich  for  the  country,  who 
boasted  that  no  court  would  give  a  verdict  against  him  or  his  men.  Misled 
perhaps  l)y  Brooks's  (piiet  methods,  he  extended  his  oi)erations  from  putting 
obstruction  on  the  track  and  firing  upon  trains,  to  burning  wood-piles  and 
depots,  destroying  at  one  fire  f  7."),()()0  worth  of  property.   .  .  . 

When  in  due  time  Mr.  Brooks's  plan  was  ripe,  he  one  night  sent  out  a 
train-load  of  special  officers,  chiefly  enlisted  among  his  own  men,  and  cap- 
tured [thirty-five]  of  the  conspirators  without  a  blow  being  struck  or  any 
resistance  attempted.    They  expected  only  to  be  carried  to  their  county 


EAELY  AMERICAN  CONDITIONS  71 

town,  there  to  be  bailed  out;  but,  when  they  approached  Detroit,  they 
found  for  the  first  time  tliat  the  law  had  been  changed,  and  that  they 
could  be  tried  in  a  place  where  justice  was  possible.  They  hired  "\^^illiam 
II.  Seward  to  come  from  New  York  and  defend  them,  which  he  did  in  a 
speech  worse  than  any  made  by  himself  or  any  other  demagogue  in  this 
country.  The  trial  lasted  all  summer.  Fitch  and  one  or  two  others  dying 
in  jail,  it  was  said  in  consequence  of  medicine  taken  to  produce  illness  and 
prolong  the  trial  in  hopes  of  a  disagreement  of  the  jury.  Mr.  Brooks's 
measures  for  getting  evidence  and  working  up  his  case  were  so  good  that 
in  spite  of  Seward's  help  and  of  all  the  disadvantages  of  a  great  corporation 
prosecuting  individuals  and  farmers,  all  the  worst  members  of  the  gang 
were  .  .  .  convicted.  ...  It  was  the  great  railroad  trial  of  this  century,  and 
settled  many  practical  questions  for  all  Mr.  Brooks's  successors  in  railroad 
building  and  management. 

In  the  operation  of  the  road,  Brooks,  as  this  episode  makes 
clear,  was  the  guiding  spirit.  Besides  being  an  experienced  en- 
gineer, he  was  an  executive  full  of  energy  and  resource.  For 
very  little  of  what  he  was  called  upon  to  do  was  there  any  prece- 
dent ;  conditions  were  so  exceptional  that  his  inventive  genius 
was  heavily  drawn  upon.  It  was,  in  fact,  a  typical  instance  of 
the  way  in  which  mother  wit  and  Yankee  ingenuity  can  save  a 
situation  and  establish  order  out  of  chaos. 

Such  success  as  Brooks  achieved  in  his  own  department,  how- 
ever, would  have  been  impossible  if  the  financial  management  of 
the  road  also  had  not  been  masterly.  The  older  railroads  in  the 
East  yielded  every  six  months  a  wreckage  of  embarrassments  and 
disasters,  all  due  to  the  mental  or  moral  incompetence  of  the  men 
who  undertook  to  guide  them  through  the  uncharted  waters  of 
railroad  finance.  To  find  and  to  keep  the  channel  under  such  cir- 
cumstances required  a  remarkable  measure  of  alertness,  faith,  and 
courage.  Railroading  is  preeminently  an  enterprise  in  which  men 
must  think  in  decades  and  scores  of  years  ;  yet  at  this  time  the 
oldest  road  in  Massachusetts  had  been  running  barely  fifteen 
years.  So  it  was  that,  in  these  hobble-de-hoy  days  of  raiboads, 
the  Michigan  Central  owed  no  little  of  its  brilliant  success  to  the 
fact  that  its  financial  affairs  were  guided  by  a  man  so  sound  and 
resolute  as  John  M.  Forbes. 

In  the  first  three  years  of  Forbes's  presidency  more  than 
$6,000,000  were  required  for  the  purchase,  construction,  and 


i  J 


l;  All.W  W     I'llor.LKMS 


rtiuipnu'iit  o\'  llic  road.  It  was  his  hiisiiicss  to  secure  this  money, 
ami  the  Hiiiits  within  which  he  coiiM  w  oik  w  ere  iiurrow' t'liough. 
With  Kai'int;'  lii'others  and  with  itankcis  in  iMirope,  it  is  true,  he 
was  in  idose  touch  ihrounh  his  vent^lrl^s  in  the  China  trade,  and 
to  such  men  he  was  constantly  expressing  the  hopi'  that  the  high 
rates  of  interest  prevailing  in  the  United  States  miglit  prove  more 
tempting  than  the  threi'  or  lour  [)ei'  cent  they  could  get  at  liome. 
"Von  aie  probably  aware,  "  lu'  wiote  in  March,  1849,  to  a  mer- 
chant in  Hamburg,  "that  for  IS  months  past  the  Jt's^  paper,  such 
as  that,  for  histanee,  of  my  good  uncle,  T.  II.  Perkins,  Esq.,  with 
other  names  on  the  notes,  has  been  selling  here  at  from  10  to 
18^  per  annum."  But  foreign  bankers,  making  no  distinction 
between  iMiterprises  backed  by  poor  and  irresponsible  western 
states,  and  those  financed  by  reliable  eastern  merchants,  were 
proof  against  his  allurements ;  and  in  these  first  years,  except 
for  one  small  loan  obtained  at  the  very  beginnhig,  not  a  cent  of 
foreign  capital  went  into  the  Michigan  Central  Railroad.  On  the 
other  hand,  the  contuiuing  decline  of  the  China  trade  and  the 
whaling  industry  in  New  England  was  an  opportunity  of  which 
Forbes  made  the  most.  By  his  persistent  and  persuasive  appli- 
cation to  his  friends,  and  by  the  action  of  the  directors  in  apply- 
ing to  construction  the  eight  per  cent  dividend  of  <|1 76,000, 
earned  in  1848,  and  issuing  a  dividend  of  stock,  the  cash  needed 
to  complete  the  road  was  raised. 

Thus,  thanks  to  the  faith  and  works  of  Brooks  and  Forbes, 
when,  in  the  spring  of  1849,  the  line  was  completed  from  Detroit 
to  New  Buffalo  on  Lake  Michigan,  the  stockholders  had  every 
reason  to  be  satisfied  with  their  investment.  Not  only  was  the 
road  well  constructed :  it  was  adequate  in  its  provisions  for  m- 
crease  of  traffic.  Moreover,  the  company  had  built  the  Mayflower, 
one  of  the  largest  and  fastest  steamers  in  the  country,  to  run 
between  Buffalo  and  Detroit,  and  thus  it  controlled  the  only 
quick  route  to  the  West.  With  the  assurance  of  a  large  amount 
of  through  traffic  to  be  added  to  its  already  profitable  and  rapidly 
growing  business,  the  road  promised  to  become  without  further 
delay  a  highly  remunerative  investment.  Forbes  and  Brooks, 
to  be  sure,   perceived  that  tlieir  very  success,   taken  with  the 


EARLY  AMERICAN  CONDITIONS  73 

quickened  development  of  the  West,  was  bringing  the  danger  of 
competition  nearer  and  nearer.  They  could  not  expect  to  keep 
then*  advantage  much  longer  to  themselves.  But  the  conserva- 
tive majority  looked  upon  any  such  possibility  as  chimerical ; 
and  the  dh^ectors,  confident  that  the  road  would  never  need  to  go 
beyond  the  western  boundary  of  the  state,  even  rejected  a  chance 
to  obtain  for  a  song  a  railroad  charter  wliich  had  been  granted  by 
the  Indiana  legislature.  They  had  made  their  mvestment ;  the 
railroad  was  finished ;  they  now  wanted  the  profits  to  come  in. 

Withm  a  year,  however,  these  illusions  of  security  were  dis- 
pelled. A  group  of  New  York  capitalists  bought  the  INIichigan 
Southern,  the  straggling  zigzag  bit  of  Ime,  once  the  property  of 
the  state,  which  has  already  been  mentioned,  snapped  up  the 
Indiana  charter  wliich  the  Michigan  Central  had  rejected,  and 
prepared  to  build  a  cheap  railroad  from  Toledo  to  Chicago.  At 
the  same  time  it  became  apparent  to  the  most  conservative  minds 
that  the  construction  of  a  railroad  along  the  southern  shore  of 
Lake  Erie  was  only  a  few  years  distant.  If  the  Michigan  Central 
were  not  to  become  an  isolated  piece  of  road,  picking  up  what 
business  it  could  between  its  two  lake  termmals,  it  must  extend 
its  influence  both  east  and  west.  Its  owners  must,  in  fact,  double 
their  investment  if  they  were  to  save  what  they  had  already  put  in. 

Among  the  causes  tliat  accounted  for  the  extraordinary  devel- 
opment of  the  period  upon  which  the  Middle  West  was  just 
entering  were  such  obvious  ones  as  the  steady  mcrease  of  the 
population,  particularly  after  1848,  by  immigration  from  Ger- 
many, and  the  general  introduction  of  the  McCormick  reaper, 
which  made  possible  the  increase  of  the  grain  hp-rvest  twenty  or 
thirty  fold.  Furthermore,  commerce  between  this  region  and  the 
cotton-raising  states  had  outgrown  the  capacity  of  the  rivers  and 
demanded  a  railroad  from  the  Lakes  to  the  Gulf.  So  impera- 
tive was  this  last  need,  that  in  1850  Congress  granted  aid  from 
the  public  lands  along  tlie  line  of  the  pro[)()sed  route.  Witli  this 
magnificent  gift,  the  roads  that  were  to  compose  the  system  — 
the  Illinois  Central  and  the  JNlobile  and  Ohio  —  could  make  a 
successful  appeal  for  capital. 


74  i;aii.\\  a\    I'koi'.lkms 

Hut  pi'vliaps  tlu'  rhii'l  reason  tor  llic  ra{)iil  (Icvclopmont  of 
tlii'sc  yi'ars,  I'sprcially  as  ivganls  railroads,  was  the  call  ol"  tlie 
Far  West.  Willi  lilt'  discovery  of  gold  in  California  in  1849, 
tin-  nation  took  a  continental  view  of  itself.  Its  lirst  thought 
was  to  abridge  the  journey,  long  and  wearisome  whether  by  land 
or  by  sea,  to  the  Pacilic  eoiist,  and  every  railroad  in  the  Missis- 
sippi \' alley  entertained  schemes  of  laying  its  track  westward 
over  the  prairies.  "The  discoveries  of  gold,"  wrote  Forbes  in 
1854,  "have  been  llu'  direct  cause  of  the  construction  of  four- 
lii'ths  oi  the  western  railways  begun  since  1849.  The  success 
of  a  few  which  had  been  previously  constructed  gave  confidence, 
it  is  true,  and  the  West  had  been  fast  developing ;  but  not  nmch 
faster  than  it  had  been  in  four  years  previously,  when  hardly 
anything  was  done  in  railways  there.  This  sudden  success  of 
western  enterprises  was  also  in  the  face  of  the  failure  or  the 
depreciation  of  the  eastern  railways."  ^ 

By  the  year  1850  eastern  financiers  were  fully  awake  to  these 
marvellous  opportunities  for  the  investment  of  capital.  Their 
own  resources  bemg  still  inadequate,  they  again  appealed  to 
Europe.  "As  money  seems  to  be  a  drug  on  your  side,"  wrote 
Forbes,  in  May  of  1852,  to  the  merchant  in  Hamburg  to  whom 
three  years  before  he  had  turned  in  vain,  "while  we  have  still 
use  for  it  here  at  a  fair  price,  I  cannot  help  repeating  the  sug- 
gestion which  I  then  made  for  your  consideration.  When  I  see 
quotations  on  your  side  and  on  ours  for  money,  I  feel  just  as 
you  would  if  old  Java  Coffee  were  selling  here  at  four  cents,  and 
a  drug  at  that,  while  fifteen  days  distant  it  was  worth  eight  cents 
in  your  market." 

And  to  Russell  Sturgis  in  London  he  wrote  in  September, 
1851,  concerning  the  prospects  of  railroad  building  in  Illinois: 
"  Imagine  a  deep  black  soil,  almost  every  acre  of  which  can  be 
entered  at  once  with  the  plough,  and  an  enormous  crop  secured 
the  first  season,  but  where  the  very  fertility  and  depth  of  the 
soil  make  transportation  on  common  roads  almost  impracticable 
at  the  season  when  produce  ought  to  be  sent  to  market,  and 
this  region  now  for  the  first  time  opened  to  a  market  by  railroad. 
1  February  20,  1854. 


EARLY  AMERICAN  CONDITIONS  75 

The  farmer  himself  in  the  interior  of  the  state  will  be  nearer 
New  York  in  time  and  even  in  cheapness  of  transporting  his 
produce  than  the  fertile  Genesee  valley  was  before  the  Erie 
Canal  was  made,  and  where  poorer  land  is  now  worth  one  hun- 
dred dollars  per  acre  and  upwards — ^  nearer  in  time  than  many 
parts  of  the  interior  of  New  York  and  Ohio  rioto  are.'''' 

The  result  of  this  constant  hammering  and  of  such  a  fact  — 
patent  to  all  —  as  the  success  of  the  ]Michigan  Central,  was  that 
the  English  threw  their  hesitation  to  the  wmds,  and  after  it  their 
discretion  too.  The  same  British  lack  of  discrimination  which, 
after  the  panic  of  1837,  had  lumped  together  all  investments  in 
the  Middle  West  as  bad,  now  lumped  them  all  together  as  good. 

Whatever  the  remote  danger  from  tliis  state  of  things,  —  and, 
as  will  presently  appear,  it  was  a  danger  that  Forbes  saw  clearly, 
—  the  immediate  advantage  to  the  Michigan  Central  was  the  as- 
surance of  an  adequate  supply  of  money  for  its  westward  exten- 
sion. Its  first  move  was  to  build  some  ten  miles  of  track,  from 
New  Buffalo,  in  Michigan,  to  Michigan  City,  in  Indiana.  There 
remained  fifty-five  miles  to  be  constructed  to  Chicago,  —  work 
which  had  to  be  done  under  conditions  of  irritation  and  excite- 
ment, for  their  rival  in  the  race,  the  Michigan  Southern,  proved 
to  be  both  alert  and  slippery.  To  Ijuild  in  Indiana,  the  Michigan 
Central  put  money  into  the  New  Albany  and  Salem  road,  a  local 
affair  which  had  thirty-five  miles  of  track  m  the  southern  part 
of  the  state  and  a  charter  conveniently  vague,  and  which,  in  re- 
turn for  the  grateful  inflow  of  eastern  capital,  consented  to  begin 
building  at  once  a  "  branch  "  around  Lake  Michigan,  in  the  north- 
western corner  of  the  state.  The  "  Southrons "  protested,  and 
persistently  sought  injunctions ;  the  Michigan  Central  men,  to 
prove  their  good  faith,  had  to  put  their  hands  deeper  into  their 
pockets,  with  the  result  that  the  New  Albany  and  Salem  achieved 
the  glory  of  becoming  the  first  line  to  connect  Lake  Michigan 
and  the  Ohio  River. 

In  building  the  twenty  miles  of  track  in  Illinois  between  the 
state  line  and  Chicago,  even  greater  difficulties  were  in  the  way. 
Partly  from  proper  reasons  of  economy,  but  chiefly  because  it 
had  no  charter  and  the  legislature  would  not  meet  for  a  year 


76  i;aii.\\a\    i'uoiu.k.ms 

and  a  lialf,  tin-  Michigan  Criilral  (U'siii'il  to  build  and  use  a  track 
in  roiunmn  w  illi  tlu'  Illinois  Central;  and  a  secret  agreement 
was  made  lietweeii  llu'  two  companies  by  which  the  Illinois  road, 
in  builtlin<^'  iis  branch  from  Chii-ago,  was  to  deflect  its  line  some 
half  a  do/en  miles  to  the  cast,  touching  the  Indiana  boundary  at 
tlu>  point  \\hcri'  the  Michigan  Central  stopped.  In  return  for 
this  I'avor,  the  Illinois  Central,  as  yet  barely  organized,  ac(iuired 
the  universal  desideratum,  eastern  capital,  and  could  begin  to 
build  at  once. 

At  the  mere  suspicion  of  such  plans,  Chicago  burst  into  wi'ath. 
Hitherto  its  isolation  had  greatly  retarded  its  growth.  Islanded 
in  "  w  ct  prairie  ''  and  Illinois  mud,  it  was  practically  inaccessible 
by  land  ;  by  water  the  route  from  the  East  was  long  and  round- 
about, while  from  the  West  the  Illinois  and  ]\Iichigan  Canal  had 
been  open  for  only  a  few  years.  Thus  in  1850,  though  it  had 
increased  by  10,000  in  the  preceding  decade,  its  population  was 
still  under  30,000,  a  pitiable  showing  when  compared  with  the 
great  river  cities  of  Cincinnati  with  115,000,  and  St.  Louis  with 
78,000.  Through  railroads  it  hoped  for  salvation  ;  and  yet  even 
here  there  was  danger.  Lying  fifteen  miles  to  the  north  of  the 
southern  end  of  Lake  Michigan,  it  had  fears  lest  the  main  line 
of  traffic  to  the  west  and  the  southwest  might  pass  it  by  alto- 
gether; and  it  shuddered  at  the  prospect  of  becoming  a  mere 
way-station  on  a  branch.  Therefore,  when  in  the  spring  of  1851 
the  city  discovered  that  three  railroad  companies  were  making 
plans  for  entering  it,  it  assumed  an  attitude  of  aggressive  sensi- 
tiveness,—  perhaps  not  unknown  since,  —  and  sought  to  dictate 
terms.  Newspapers,  city  ofhcials,  and  business  men  insisted  that 
no  through  passengers  or  freight  should  be  transferred  at  any 
junction-point  outside  the  city,  but  that  all  should  be  brought 
within  its  gates  for  tribute.  Furthermore,  the  hack-drivers  and 
teamsters,  fearmg  that  their  prospective  trade  might  be  nothing 
but  a  Tantalus  glimpse,  raised  a  cry  that  each  railroad  must 
enter  the  city  on  its  own  tracks  and  have  its  own  station. 

These  matters  all  came  to  a  head  in  July,  1851,  when  two 
"  railroad  conventions  "  were  held  in  Chicago,  at  which  the  plans 
of  tlie  roads  for  reacliing  the  city  were  made  known  to  the  public. 


EAELY   AMERICAN  CONDITIONS  77 

The  commotion,  it  is  true,  never  reached  the  intensity  of  the 
"  Erie  War,"  that  famous  contest  for  a  break  in  gauge  in  order 
that  the  piemen  of  Erie,  Pennsylvania,  might  sell  then*  wares  to 
passengers  changing  cars ;  but  it  is  amusingly  characteristic  of 
this  period  in  railroad-buildmg.  Indeed,  for  a  season  the  lustre 
of  even  the  great  Judge  Douglas  was  dimmed  in  Chicago  by 
reason  of  his  attitude  on  the  railroad  question. 

The  Michigan  Southern  smoothed  its  way  diplomatically. 
Having  secured  the  charter  of  a  plank-road  company  which  was 
alleged  to  have  railroad  privileges,  it  proposed  to  come  into  the 
city  on  its  own  track,  thus  making  sure  of  a  gracious  reception 
by  the  Chicagoans  and  of  a  generous  subscription  from  them  to 
its  stock.  The  Illinois  Central  and  the  Michigan  Central,  for 
proposing  to  come  in  together,  were  looked  upon  with  disfavor. 
The  directors  of  the  Illmois  road  accordingly  did  not  dare  to 
carry  out  their  agreement  to  swing  their  track  eastward  to  the 
Indiana  line  and  there  connect  with  the  Michigan  road.  The 
nearest  that  they  would  consent  to  come  left  a  gap  of  six  and  a 
half  miles,  over  which  Brooks  and  Joy  proposed  to  build  without 
a  charter,  trusting  to  the  next  legislature  to  legalize  then-  action. 

Forbes  protested.  "  Going  without  a  charter  a  quarter-section 
is  as  bad  as  the  Atlantic  would  be."  Unused  prairie  though  the 
land  was,  he  argued,  their  enemies  would  be  sure  to  build  a  high- 
way across  their  proposed  line  to  block  them.  Nevertheless,  as 
the  months  went  on  this  unsatisfactory  scheme  proved  to  be  the 
only  basis  on  which  it  was  possible  to  go  ahead. 

Meanwhile  in  Indiana  each  company  was  racing  to  get  its  line 
completed  first.  The  Michigan  Southern  men  had  the  advantage 
of  a  good  start,  and  were  not  retarded  by  scruples  as  to  building 
solidly,  but  the  seasons  in  their  courses  fought  against  them. 
The  rails  for  the  last  section  of  their  track  reached  Dunkirk,  on 
Lake  Erie,  after  the  lake  was  closed  to  navigation,  and,  as  luck 
would  have  it,  in  the  following  spring  the  lake  was  not  clear 
until  a  month  later  than  usual.  So,  although  the  Chicago  end 
of  the  line  was  completed,  in  Indiana  passengers  and  freight 
must  be  transported  a  distance  of  thirteen  miles  over  a  plank 
road.    The  Michigan  Central,  on  the  other  hand,  having  ordered 


78  KA1L\\A^     I'Kor.l.KMS 

its  iron  in  rjood  season  from  I'jioland,  hiiilt  stciulily  and  acliieved 
tlu'  triumph  ot"  lu'LjiinuuLi^  its  regular  throuu'li  service  on  May  21, 
1852,  a  day  ahead  of  the  tirst  thiou^h  train  on  the  Michigan 
Stnithern,  and  a  week  hct'ore  that  road  was  in  regnhir  running 
oi-(K'r.  A  month  later,  at  a  s])ecial  session  of  the  lUinois  k'gishi- 
ture.  the  si\-mih'  l»it  ol'  track  in  Illinois  was  legalized. 

In  the  midst  (»f  this  struggle  to  extend  its  road  to  the  west,  the 
Michigan  Central  was  forced  to  look  also  to  the  matter  of  east- 
ern connections.  A  line  of  roads  between  Buffalo  and  Toledo 
coiuiecting  with  the  Aiichigan  Southern  was  already  under  con- 
struction. Therefore  the  Michigan  Central  stockholders  were 
urged,  in  the  most  persuasive  of  circulars,  to  subscribe  to  the  stock 
of  the  Canada  Great  Western,  which  was  to  run  from  Windsor, 
opposite  Detroit,  through  Ontario  to  Niagara  Falls,  there  cross- 
ing the  river  by  a  suspension-bridge.  Although  the  scheme  had 
many  advantages,  notal)ly  in  the  shortness  of  the  route,  Forbes 
and  his  friends  were  hampered  by  the  necessity  of  working  with 
a  foreign  corporation.  First,  the  Canadian  road  insisted  on  a  dif- 
ferent gauge  of  track  from  that  of  the  Michigan  Central.  Then, 
at  the  instigation  of  sharp  citizens  of  Detroit,  with  an  eye  for 
making  a  penny  out  of  delayed  travellers,  it  attempted  to  locate 
its  station  in  Windsor  at  a  point  as  remote  as  possible  from  the 
station  of  the  jNIichigan  Central. 

A  later  and  more  serious  cause  of  trouble  was  the  attempt  of 
its  Canadian  directors  to  sell  the  road  to  the  Grand  Trunk. 
Journeys  to  Canada  on  the  part  of  Forbes  and  other  American 
directors  were  constantly  necessary  "  to  kill  off  some  rascals  " ; 
but  as  troubles  continued  and  multiplied,  and  as  it  was  found 
mexpedient  to  make  an  appeal  to  the  English  government,  the 
Michigan  Central  men,  after  a  few  years,  withdrew  altogether. 

In  these  labors  to  make  the  ]\Iichigan  Central  a  link  in  an  all- 
rail  route  from  the  East  to  Chicago,  the  directors  of  the  road 
had  assumed  heavy  burdens  and  run  great  risks.  Besides  adding 
a  million  and  a  half  to  the  cost  of  their  own  road,  they  had  been 
obliged  to  purchase  bonds  of  the  Illinois  Central  and  the  Indiana 
roads  to  the  amount  of  1600,000  and  f  800,000  respectively,  and 
they  had  contributed  no  less  heavily  to  the  Canadian  line.    But 


EAELY  AMERICAN  CONDITIONS  79 

they  had  been  face  to  face  with  the  emergency  of  competition. 
Not  to  have  accepted  the  challenge  wonld  have  been  to  throw 
away  all  the  money  and  labor  that  they  had  put  into  the  road 
—  a  mocking  of  their  visions.  And  from  the  competition  wliich 
they  had  spent  so  much  to  enter  there  lay  a  further  danger,  in 
that  then'  rivals  were  unscrupulous. 

For  the  next  five  years  operating  expenses  were  heavily  in- 
creased by  the  necessity  of  more  frequent  and  more  rapid  pas- 
senger trains,  and  of  "  runners "  at  various  Eastern  passenger 
stations,  and  earnings  were  cut  into  by  reduced  freight  rates. 
Every  truce  made  m  the  shape  of  an  agreement  as  to  rates  was 
secretly  violated  by  the  Michigan  Southern,  and  then  followed 
open  war.  This  state  of  things  continued  until  the  Michigan 
Southern  was  wrecked  in  the  panic  of  1857.  After  that,  with  a 
new  management  in  control,  an  arrangement  that  proved  perma- 
nent was  made  between  the  two  roads  by  which  the  steamboat 
lines  of  both  on  Lake  Erie  were  withdra^vn,  the  number  and  the 
speed  of  the  through  passenger  trains  were  reduced,  and  the 
freight  earnings  pooled  on  a  basis  of  fifty-eight  per  cent  for 
the  ]\Iichigan  Central  and  forty-two  per  cent  for  the  Michigan 
Southern.  In  this  fashion  these  financiers  discovered  the  laws 
of  competition  and  combination  in  the  field  of  railroading. 

In  spite  of  the  weight  of  the  burdens  caused  by  construction 
and  competition,  the  prosperity  of  the  Michigan  Central  in  the 
years  from  1852  to  1857  was  sufiieient  to  carry  them  easily.  In 
a  resume  of  the  history  of  the  road  made  by  Forbes  in  Decem- 
ber, 1855,  after  nine  years  of  operating  under  private  ownership, 
he  told  the  story  of  its  success  in  striking  figures. 

The  history  of  raih-oad  enterprise  in  the  West,  up  to  that  time  [1846], 
was  one  of  almost  universal  failure,  and  we  were  entering  upon  ground 
that  was  worse  than  untried  ;  it  had  been  prematurely  tried  under  the  aus- 
pices of  the  state  governments,  and  isolated  embankments  at  various  points 
stood  as  monuments  of  disaster.  .  .  . 

With  very  good  management  it  [the  Michigan  Central]  was  capable 
of  earning  as  a  maximimi  $100,000  per  annum  ;  it  has  now  grown  to  be 
260  miles  long,  with  a  power  of  earning  over  i$2,.500,000. 

During  our  first  winter,  say  December,  January  and  Fel)ruary,  1846- 
1847,  our  lulal  receipts  were  about  !|5o,000.     For  the  first  winter  after  our 


coinpK'tion  to  (Miiciiijo,  say  l)<'((iiil>cr,  ,Iaini;irv  and  Fcliruarv,  ISfi'i  ISf):?, 
our  rt'i"fi|tts  liatl  urowu  to  Ix'  ijiild  1,(100.  \\liili'  we  lia\c  cariifd  duriiit;  tJm 
first  liro  in > ks  of  (his  luontli,  Dori'iiibiT,  IS,")."),  JfU  1,000. 

The  pivsent  tfriuini  of  our  road  then  chiinicd  lo  liavc,  Detroit  and 
Ciuray;o,  each  al>ou(  11,000  iidialiilauts,  liic  t'oniicr  uo\v  chiiuis  li»,(!00, 
and  till-  hitter  SO.OOO.   .   .   . 

Tlu'  wiioh'  nuiulu'r  of  niih-s  of  railroad  wist  of  Buffalo  and  uortli  of  llio 
Ohio  Kivi'r  was  only  ahouf  "jOO  miles,  and  tiiese  laid  with  a  Hal  rail  ;  where 
there  are  now  over  7;500  miles  of  road  liuislied  with  heavy  rails,  besides  a 
large  anuiunt  of  unfinished  roads. 

Detroit  was  tlien  three  days'  journey  from  the  seahoard  in  the  summer,  and 
five  or  six  days  in  winter.    It  can  now  he  reached  in  ahont  tweidy-seven  hours. 

With  an  addition  to  construction  of  thirty -eight  per  cent,  the 
business  of  the  road  had  grown  one  hun(h-ed  and  forty  per  cent. 
The  hicrease  in  gross  earnings  in  1855  over  1854  was  forty  per 
cent,  and  the  limit  of  its  capacity  as  a  single-track  road  was  fast 
being  reached.  Moreover,  the  increase  of  traffic  from  the  new 
roads  in  Illinois  which  were  in  alliance  with  the  Michigan  Cen- 
tral—  the  Illinois  Central  and  the  Chicago,  Burlington,  and 
Qiiincy  —  was  only  just  beginning  to  be  felt. 

The  result  of  the  rapid  lailroad  expansion  after  the  war  was 
seen  as  early  as  1870  in  the  existence  of  three  lines  —  of  which 
the  C.  B.  &  Q.  and  the  Burlington  and  Missouri  in  Iowa  consti- 
tuted one  —  connecting  Chicago  and  Omaha,  and  in  the  forma- 
tion of  the  "  Omaha  pool "  for  the  })urpose  of  dividing  equally 
the  profits  of  the  business  done  between  the  two  cities.  Though 
the  evils  of  competition  were  checked  here,  they  cropped  out 
elsewhere  in  the  constant  temptations  offered  to  the  trunk  lines 
to  purcliase  small  branch  roads.  The  usual  method  was  for  a 
group  of  towns  considering  themselves  worthy  of  the  privileges 
of  a  railroad  to  vote  for  its  construction  sums  which  often  ran 
as  higli  as  ten  thousand  dollars  a  mile,  and  then  to  take  their 
proposed  line  to  market.  The  trunk  line  which  they  first  ap- 
[)roaclied  rarely  refused  to  pay  the  sum,  however  large,  which 
might  be  needed  to  attach  the  new  road  to  its  system ;  little  as 
it  might  be  able  to  afford  the  expense,  —  for  these  branches  usu- 
ally proved  "  suckers  "  instead  of  "  feeders,"  —  it  could  still  less 


EARLY  AMERICAN  CONDITIONS  81 

afford  to  see  the  branch  grafted  upon  a  rival  trunk.  Eastern 
du-ectors  had  as  yet  hardly  heard  of  pools,  such  things  being 
minor  mysteries,  with  which  western  managers  alone  were  con- 
cerned ;  but  the  proposals  for  the  purchase  of  branch  roads  came 
within  their  cognizance,  and  they  were  inclined  to  suspect  that 
these  schemes  were  often  sheer  imposition,  Forbes's  certainty  on 
this  point  was  pithily  put  at  the  time  in  story  fashion,  and  he 
was  fond  of  telling  the  anecdote  in  later  years. 

It  had  become  quite  common  [he  writes  in  his  "  Reminiscences  "]  for 
[the  President]  to  come  from  the  West  with  a  plan  for  a  hundred  or  two 
miles  of  new  road,  which  then  meant  about  $30,000  of  seven  or  eight  per 
cent  bonds  per  mile ;  and  on  one  occasion,  when  such  a  .branch  was  about 
being  authorized,  I  related  a  story  of  my  Naushon  experience.  We  had 
been  troubled  with  cats,  which  destroyed  our  birds,  and  so  we  put  a  bounty 
on  killing  them  of  so  much  for  every  cat's  tail  brought  in ;  which  amount 
proving  insufficient  we  raised  the  price  until  we  found,  or  thought  we  found, 
that  they  were  raising  cats  to  bring  in  to  sell  to  us.  "  Now,"  said  I  to  the 
directors,  "  I  am  convinced  that  the  contractors  and  speculators  are  building 
roads  merely  to  sell  to  us,  and  the  more  we  buy  of  them,  the  more  cats' 
tails  will  be  brought  in  to  us  !  "  That  cat  was  not  bought ;  the  story  got 
around,  and  in  Boston  circles  the  Chicago,  Burlington,  and  Quincy  branches 
were  known  as  the  C.  B.  &  Q.  cats'  tails.^ 

Still  another  difficulty  connected  with  railroad  management  in 
these  years  was  the  insistent  need  of  pushing  out  into  new  ter- 
ritory at  a  rate  and  in  a  direction  that  should  prove  far  enough 
and  yet  not  too  far  ahead  of  the  oncoming  flow  of  population. 
Here  was  a  problem  containing  so  many  chances  for  error  m  its 
solution  that  the  interests  of  the  company  as  a  whole  must  be 
considered  from  every  point  of  view  before  it  was  safe  for  the 
road  to  commit  itseff.  The  B.  &  M.  m  Nebraska,  organized  as  a 
separate  corporation  to  build  from  the  Missouri  River  at  Platts- 
mouth  to  the  recently  completed  Union  Pacific  at  Kearney,  be- 
sides having  a  land  grant  of  2,365,864  acres,  easily  justified 
itself  as  being  certain  to  obtain  a  good  share  of  business  from 
and  to  the  Union  Pacific.  Another  plan  for  building  a  road  up 
the  west  bank  of  the  Mississippi  River  into  what  was  then  the 
far  Northwest,  that  is  to  say,  southern  Minnesota,  was  agreed  to 

1  Letters  and  Recollections,  Vol.  II,  p.  213. 


S2  KA1I,\\A^'  rKor.i.KMS 

hv  tlu'  (\  U.  (S;  Q.  l)t);u(U  and  was  i)iit  into  I'xccution  in  similar 
I'asliioii  l)v  till'  niuani/.atioii  ot  two  iiuirpc'iitli'iilcoiiipanit's  known 
as  till*  I)ul)U(ini'.  or  Kivrr,  Uoads.  The  directors  of  the  ('.  B.  &  Q. 
ivconmieiuled  to  tlieir  stockholders  the  hoiids  of  these  roads  to 
tlio  extent  ot"  some  t'oui'  and  a  half  millions  of  dollars,  and  took 
a  considerable  share  for  tln'iusclvcs.  The  bonds  bore  six  per 
cent  interest  and  were  sold  at  90.  In  this  case,  however,  the 
caution  of  the  eastern  directors  had  ^iven  way  too  easily  before 
the  enthusiasm  of  the  western  olHcials:  the  promise  of  local  aid 
and  a  land  grant  of  40,000  acres  could  not  make  up  for  the  fact 
that  the  roads  were  built  nearly  ten  years  too  soon.  Charles  E. 
Perkins,   Forbes's  cousin,   who  had    been  associated  with  the 

B.  &  ]\I.  in  Iowa  since  1859,  showed  his  clearer  understanding 
of  the  situation  at  the  moment  in  the  ironical  remark  that  the 
directors  of  the  C.  B.  &  Q.  might  as  well  have  endorsed  the 
bonds  of  a  railroad  to  be  built  in  the  valley  of  the  Red  River  of 
the  North.^  From  this  error,  as  will  presently  appear,  came  a 
train  of  disastrous  consequences. 

Consolidation  naturally  went  hand  in  hand  with  rapid  physi- 
cal development.  On  January  1,  1873,  the  C.  B.  &  Q.,  with  its 
825  miles  of  track,  and  the  B.  &  j\I.  in  Iowa,  with  its  443  miles, 
were  united,  the  new  corporation,  which  held  property  worth 
more  than  fifty  millions  of  dollars,  being  one  of  the  largest  in 
the  country.    But  this  was  only  a  first  step.    Though  the  new 

C.  P>.  i.^  Q.  stood  high  in  the  financial  world  and  commanded  the 
services  of  able  men  in  its  sevei'al  departments,  its  organization 
was  extremely  haphazard.  It  had  no  definite  method  for  secur- 
ing harmonious  and  united  action  between  the  financial  manage- 
ment in  Boston  and  the  operating  management  in  Chicago,  and 
its  system  of  auditing  belonged  t(i  ante-hellmn  days.  Further- 
more, as  with  the  directors  in  Boston  the  care  of  C.  B.  &  Q. 
interests  was  only  one  of  several  irons  in  the  fire,  so  the  execu- 
tive officers  in  Chicago  gave  to  the  road  only  a  portion  of  their 
time.  Nowhere  was  there  a  man  of  experience  and  force  in 
higli  position  devoting  himself  exclusively  to  the  service  of  the 
road. 

J  MS.  Recollections  of  C.  E.  Perkins. 


EARLY   AMERICAN'    CONDITIONS  83 

The  dangers  of  such  a  situation  came  upon  Forbes  with  cumu- 
lative effect  in  June,  1873,  after  his  return  from  a  yachting  trip 
to  the  Azores  and  a  visit  to  CaUfonua  which  had  kept  him  away 
from  Boston  and  business  for  a  year  and  a  half.  Long  trusted 
as  his  co-workers  and  fellow  counsellors  had  been,  their  acqui- 
escence in  the  methods  and  routine  of  smaller  days  contmued 
under  the  new  conditions  became  a  trouble  that  he  could  not 
shake  off.  Reports  from  his  sharp-eyed  and  critical  cousm  in  the 
West,  who  now,  as  vice-president  of  the  B.  &  M.  in  Nebraska, 
could  speak  more  freely  of  C.  B.  &  Q.  men  and  measures,  helped 
to  make  Forbes  feel  that  matters  should  no  longer  be  allowed 
to  drift.  The  bonded  indebtedness  of  the  combined  roads  needed 
badly  to  be  got  into  satisfactory  shape,  and  there  was  a  float- 
ing debt  of  a  million  and  a  half  dollars.  His  uneasiness  is 
expressed  in  a  letter  written  to  a  fellow  director  not  long  after 
his  return. 

I  do  think  we  need  more  control  at  this  end  over  our  50-million  property. 

We  know  next  to  nothing  and  we  trust  the  administration  of  this  mam- 
moth enterprise  1000  miles  off  to  a  man  who  has  no  experience  in  the  details 
of  R.  R.  business,  and  who  represents  at  least  two  other  companies,  whose 
interests  may  he  conflicting  :  1st,  the  coal  co.  of  whom  we  buy  our  fuel ; 
2d,  a  R.  Road  which,  with  or  without  his  fault,  has  managed  to  get  largely 
into  a  debt  to  us  which  it  cannot  pay. 

I  don't  know  how  many  other  things  he  may  be  in,  which  are  suckers 
instead  of  feeders,  but  if  the  stockholders  ever  look  into  their  aifairs  and 
find  that  in  one  way  and  another  —  with  the  Board's  assent  and  without 
it  —  the  present  administration  have  used  over  a  million  of  their  money  for 
the  protection  of  other  enterprises  in  which  some  of  the  Directors  are  con- 
cerned, and  all  the  stockholders  are  not,  we  shall  find  ourselves  in  a  very 
awkward  position.  It  was  only  at  the  June  meeting  of  the  Board  that  1 
knew  of  this  accumulation  of  indebtedness.  It  was  my  fault  that  I  did  not 
know  and  try  to  prevent  it,  l>ut  I  don't  feel  like  going  on  in  the  same  road 
much  farther. 

Anybody  may  make  one  such  blunder  in  trusting  others'  management, 
but  the  man  that  makes  it  a  second  time  with  his  eyes  thus  opened  becomes 
a  party  to  the  mismanagement,  and  I  confess  I  see  nothing  to  prevent  the 
same  sort  of  thing  being  done  right  over  again  —  except  that  our  credit  is 
not  ([uite  so  good.^ 

1  July  13,  187.3. 


84  KAii.\VA\    im;(>I'.m:.ms 

Tlu'  (lis(|iii»'t  luMi'  cxprcssi'd  was  not  allayrd  wluMi  Forbes 
li'anu'd  of  tlu'  pass  to  wliicli  tlif  I wd  I{i\fr  Ivoads  had  l)c'cn 
l)roii<4lit.  I'ldiii  llu'  (iiitsft  niisroitiiiic  had  aUrii(K'd  ihciii.  The 
Cdiii'a<^'o  and  Northwi'sti'in,  which  owiu'd  [\\v  raih'oad  bridge 
oviT  the  Mississippi  al  C'Hiiton,  acting;'  with  pardonable  eoiisid- 
iTalion  for  its  own  interests,  rt'fused  to  permit  the  h>wi'r  of  the 
two  to  inaki'  eoiiiiei'tiou  over  it  with  the  C.  I>.  &  C^. ;  and  thus 
a  portion  of  the  athlitional  trailie  expected  went  to  increase  the 
prolits  of  a  rival  trunk  line.  As  if  this  were  not  bad  enough, 
extravagant  construction  and  careless  nianagenient  had  done 
their  worst,  and  early  in  1<S73  the  River  Roads  were  in  such 
condition  that  they  were  unable  to  pay  the  interest  on  their 
bonds.  Jn  this  emergency,  the  directors  of  the  C.  B.  &  Q.  under- 
took to  save  the  situation  by  voting  the  sum  necessary  for  this 
payment  from  the  funds  of  tlieir  company.  When  Forbes  dis- 
covered where  the  cash  for  liis  coupons  came  from,  liis  first  im- 
pulse was  to  express  his  disapprobation  and  disgust  by  returning 
the  money.  To  one  of  the  directors  who  protested  against  this 
course  he  wrote : 

Not  wisliing  to  do  anything  in  haste  which  so  wise  a  man  as  you  dis- 
ap[)roves  of,  1  withdraw  my  letter  .  .  .  for  the  moment ;  Init  when  yon  get 
time  I  wish  you  would  give  me  in  ten  lines  the  grounds  upon  which  you 
expect  to  justify  the  payment  of  the  Dubuque  Bonds  coupons. 

That  it  will  eventually  come  out  and  be  challenged  is  just  as  sure  as  that 
we  live,  and  now  is  the  time  for  any  of  us  who  were  not  resjionsible  for  the 
transaction  to  take  their  ground. 

I  am  open  to  conviction  ;  but  while  I  can  guess  at  many  good  i*easons 
for  ])Hying  out  such  a  large  sum  to  outsiders,  I  am  utterly  at  a  loss  for 
reasons  justifying  our  vesting  it  to  ourselves.^ 

On  this  point  Forbes  yielded  for  the  moment.  In  the  mean- 
time, his  passion  for  having  things  sound  and  right,  and  liis  sense 
of  res23onsibility,  now  thoroughly  awakened,  drove  him  to  work 
over  plans  for  getting  the  indebtedness  of  tlie  road  into  shape  by 
a  large  issue  of  mortgage  bonds  wliich  Baring  Brothers  might  be 
induced  to  take.  This,  of  course,  they  would  not  do  "without 
giving  C.  B.  &  Q.  a  good  sifting,"  and  thus  the  reforms  ui  the 

1  August  7,  187.3. 


EARLY   AMERICAN   CONDITIONS  85 

management  which  Forbes  desired  could  be  accompHshed.  In 
such  manner  the  summer  wore  away. 

The  panic  of  September,  1873,  with  its  widespread  wrecking 
of  raih'oads,  when  the  River  Roads  went  completely  under,  and 
the  C.  B.  &  Q.  stood  firm  chiefly  through  the  strength  brought 
to  it  by  the  B.  &  jNI.,  was  to  Forbes  a  trumpet-call  to  action.  As 
of  old,  nothmg  roused  liim  so  completely  as  the  threat  of  disaster. 
Within  a  week  he  was  off  for  the  INIississippi  Valley,  impatient 
and  relentless,  to  do  a  little  "sifting"  on  his  own  account.  With 
him  went  Jolm  N.  A.  Griswold,  who  had  lately  been  added  to 
the  board  and  on  whom  he  relied  implicitly.  A  batch  of  tele- 
grams scattered  notice  of  their  coming.  "  If  we  cannot  do  any 
good  we  can  say  we  have  tried!''''  he  wrote. 

The  investigation  included  a  trip  over  the  River  Roads  from 
Clmton  to  La  Crescent.  With  the  two  men  from  the  East  were 
J.  K.  Graves,  the  president  of  tlie  roads,  and  various  high  offi- 
cials of  the  C.  B.  &  Q.  system.  In  the  course  of  the  journey, 
Graves  explained  to  one  member  of  the  party  that  the  work  of 
building  the  roads,  as  yet  incomplete,  had  been  undertaken  by  a 
construction  company,  of  which  several  of  the  directors  of  the 
C.  B.  &  Q.  were  stockholders. ^  Other  facts  given  in  the  same 
conversation  were  such  as  to  lead  Forbes,  when  it  was  repeated 
to  him,  to  determine  on  a  session  of  rigid  cross-exammation. 
Here  follows,  in  his  own  vivid  and  vigorous  language,  the  story 
of  the  interview,  as  he  wrote  it  out  in  detail  within  the  next 
forty-eight  hours  for  the  benefit  of  one  of  the  du'ectors  in 
Boston. 

Returning  Friday  night  from  our  survey  we  passed  the  eveniug  at  the 
company's  offices  in  an  interview  (and  a  course  of  inquiries)  with  the  presi- 
dent, Mr.  Graves,  the  treasurer,  General  Booth,  and  the  superintendent, 
Mr.  Hudson,  which  developed  the  most  remarkable  condition  of  things 
wliich  I  have  thus  far  found  upon  any  living  railroad  company.  The  presi- 
dent is  a  shar[)  merchant,  full  of  various  enterprises,  from  gas-works  u})  to 
Ituilding  railroads,  pretty  bright,  but  loose  in  his  notions  of  administration, 
loose  beyond  the  imagination  of  the  ordinary  mind  to  conceive  of. 

General  Booth,  on  the  other  hand,  seems  tighter  and  more  technical 
than  any  West  Point  martinet ;  his  accounts  beautifully  correct  in  form, 

1  MS.  Recollections  of  C.  E.  Perkins. 


80  i:aii,\\.\\    iMv'or.iJiMS 

ami  (as  lio  suys)  kopt.  distiiut  in  ImiiU  Irnm  his  piivatc  or  fmiu  any  outside 
iuixin_y;s;  hut  In-  is  and  prtift'ssfs  to  lie  sini|ily  an  autonialnn.  .  .  .  'I'o  our 
questions  wlu'tluT  lie  used  any  discrctidn  in  lln'  a|i|ilicat  inn  of  the  funds 
or  any  suiu'rvision  of  tlicir  nsr,  lie  n'lilifd  tranidy  ; 

"None  whatever.  1  simply  pay  the  money  when  called  for  by  the  jiresi- 
dent  and  tlu"  suiH'rintentlent." 

••  Winit  has  been  done  witli  the  $11(1,0(10,  more  or  less,  earned  by  the 
rt)ads  since  December  1,  1872?" 

'•  It  has  been  j)aid  to  the  superintendent's  oi-der  for  ex])enses,  and  the 
balance  has  been  paid  to  the  president.  \\'iiat  the  2)resident  does  with  it 
is  no  concern  of  mine." 

Question  to  the  president:  "What  have  you  been  doing  with  the  com- 
pany's money  ?  " 

Answer.  "  I  have  been  paying  the  notes  which  I  luive  given  as  president." 

"What  are  the  notes?  Where  is  the  record  of  them?  Is  it  iu  the 
treasurer's  account  ?  " 

"  It  is  not  iu  the  company's  books,  but  can  be  ascertained." 

"  What  were  the  notes  given  for?" 

AuswiT.  "  Chiefly  to  meet  the  obligations  of  two  construction  companies, 
of  which  I  was  president  also,  and  which  built  the  roads  of  each  company 
by  contract." 

"  Then  you,  as  president  of  the  railroad  company,  are  paying  yourself 
as  president  of  the  construction  company,  without  the  sujiervision  of  the 
treasurer  or  of  any  one  else,  and  without  any  auditing  of  your  accounts?  " 

"  Yes." 

"  Have  the  construction  compan}-  received  the  full  amount  of  money,  of 
stocks,  of  lands,  for  which  they  agreed  to  construct  and  ecpiip  the  roads?" 

"Yes,  they  have,  leaving  unfinished  about  forty  miles  of  Turkey  Branch 
and  twelve  miles  on  the  lower  road." 

"  Have  any  of  your  directors  besides  yourself  been  interested  in  these 
contracts  ?  " 

The  answer  to  this  was  not  definite,  but  left  the  impression  that  some 
of  the  directors  had  been,  and  he  promised  to  send  me  a  copy  of  the  con- 
tracts, and  a  list  of  the  stockholders  in  the  construction  company.  He 
asserts  that  all  the  assets  of  the  construction  company  have  been  expended, 
excei)t  a  ])art  of  the  laud  grant,  which  remains  unsold  ;  and  to  my  question 
whether  this  remaining  land  ought  not  to  be  returned  to  the  company,  he 
answered  that  he  thought  the  contractors  would  do  whatever  is  fair,  but 
that  they  had  been  large  cash  losers  by  the  contract,  and  have  nothing  but 
a  little  land  and  a  good  deal  of  railroad  stock  to  show  for  it. 

Exactly  how  much  cash  from  our  earnings  had  been  paid  over  to  the 
contractor  president,  we  had  not  time  to  investigate,  but  of  course  if  the 
superintendent's  figures  are  right,  about  ^140,000 ;  and  the  railroad  presi- 
dent seems  to  be  expecting  to  go  on  pjayiug  to  the  contractor  2>i'esideut  our 


EARLY  AMERICAN   CONDITIONS  87 

earnings  as  they  come  in,  until  he  has  paid  off  the  debts  of  the  construction 
company.  .  .  . 

What  the  equities  or  the  elements  of  expediency  are,  I  know  not,  but  it 
is  perfectly  clear  to  me  that  the  board,  which  I  now  understand  is  trans- 
ferred to  Boston,  ought  at  once  to  direct  the  treasurer  to  apply  the  earnings, 
first,  to  paying  off  legitimate  operating  expenses,  and  next  to  hold  the 
balance  for  such  uses  as  the  board  may  direct,  —  or,  better  still,  remit  it  to 
Boston,  instead  of  holding  it  to  the  order  of  Mr.  Graves  —  an  active  mer- 
chant and  the  representative,  first,  of  contractors,  and  second,  of  another 
railroad,  the  Iowa  Pacific,  to  whose  use  he  has  already  apjilied  tf  170,000  of 
the  funds  of  our  two  companies,  or  of  the  contractors,  which  are  all  mixed 
up  together.  Mr.  Graves  (to  his  credit  be  it  said)  seemed  to  appreciate  the 
absurdity  of  his  position,  and  expressed  a  desire  to  have  his  accounts  audited 
and  to  have  a  settlement ;  but,  in  our  judgment  (I  speak  of  Griswold  and 
myself),  the  blame  will  be  transferred  to  the  board,  if,  after  knowing  this 
state  of  things,  they  allow  the  funds  of  the  company  to  remain  a  day  longer 
under  the  control  of  a  man  who  has  so  many  other  uses  for  them,  however 
honest  and  however  rich  he  may  be  on  paper. 

As  an  instance  of  what  may  happen,  the  pay-roll  was  postponed  a  month 
in  order  to  pay  some  of  the  debts,  but  whether  it  was  for  the  debts  of  the 
railroad  company  or  for  the  contractor,  or  the  Iowa  Pacific,  or  Mr.  Graves's 
personal  ones,  we  had  not  time  to  investigate,  and  nobody  can  tell  until  an 
auditor  (and  a  very  good  and  forcible  one)  settles  what  Mr.  Graves's  account 
stands  at,  and  who  ought  to  pay  the  notes.  He  has  signed  as  president, 
probably  without  any  vote  of  the  board,  and  certainly  without  having  them 
recorded  in  the  books  of  the  company.^ 

The  director  to  whom  Forbes  poured  out  this  story  of  mis- 
management, in  the  hope  of  eUciting  his  sympathetic  indignation, 
was  himself,  such  is  the  irony  of  circumstance  in  the  busmess 
world,  one  of  the  members  of  the  construction  company,  —  a  fact 
which  soon  came  to  light.  Indeed,  it  presently  transpired  that 
six  out  of  the  twelve  members  of  the  C.  B.  &  Q.  board  were  in 
this  position,  and  five  of  the  six  were  Boston  men.  Being  persons 
of  integrity,  who  had  conceived  that,  in  their  two-fold  capacity 
as  contractors  and  directors,  they  were  fully  able  to  deal  with 
themselves  justly,  they  took  offence  at  Forbes's  pointed  questions 
concerning  their  acts,  and  refused  to  give  information.  This 
secrecy,  based  on  a  natural  though  mistaken  wish  not  to  seem 
to  flinch  under  fire,  of  course  aroused  suspicion,  and  led  the  way 

1  November  9,  1873. 


SS  KAiLWAV    I'laU'.LK.MS 

to  a  (UMnaiul  lor  an  invest iufalioii.  Finally,  the  resent nuMil  Felt 
bv  the  contrai'tor-diri'ctoi-s  that  b'orhcs  slionld  seem  to  inipn^'n 
tlu'ir  lioncstN'  as  well  as  their  jiKl^incnl  hiul  llic  cITcct  of  uuiliiii;' 
them  in  ili'lVnce  of  tlu'  old  n'-j^iiiif  in  I  lie  (".  !').  vV  (^).  hoard  and 
its  nu'lhods. 

The  point  of  l<\)rlH's"s  crilicisni  of  his  associates  is  pci'ha-ps 
best  seen  fron\  a  letter  written  dnrino-  the  lonii;"  eonrsc  of  these 
dilhenlties  to  his  friend  S.  (1.  Wai'd,  aj^'ent  of  liarinj;-  lirolhers. 
"  Hither  yon  or  (Jeor^'e  once  made  a  very  pertinent  remark  ahont 
C.  li.  »fc  Q.,  to  the  effeet  that  we  had  Jioiicsf  enonj^li  mana^'e- 
ment,  everybody  said,  bnt  that  it  took  something  besides  lionesty 
to  rnn  a  \)\\j;  railroad,  and  that  tlu;  smart  rognes  ai'onnd  ns 
would  beat  us  hi  net  prolits  to  their  stockholders  after  having 
stolen  all  they  wanted  !  I  have  often  thought  of  it,  and  recog- 
ni/.i'd  the  soundness  of  your  view.  Skill,  talent,  courage,  honesty 
are  all  essential  to  railroad  management,  and  especially  so  in  dis- 
tant ones  which  are  ajit  to  be  managed  after  the  fashion  of  the 
Roman  viceroys."  When  therefore  he  found  that  the  contractor- 
directors  either  could  iu)t  or  would  not  see  their  fault,  thei'e 
was  nothing  for  him  but  dcdilxiratidy  to  range  himself  against 
them.  His  clear  sense  of  the  welfare  of  the  great  corporation, 
the  reorganization  of  which  he  now  deemed  more  inn)ortant 
than  ever,  and  his  feeling  of  responsibility  toward  the  hundreds  of 
investors  whose  money  it  was  using,  both  drove  him  on  to  action. 

Tliough  he  and  his  suppoi'ters  were  a  minority  in  the  C.  B. 
&  Q.  Ijoard,  they,  as  bondholders  of  the  River  Jioads,  were  able 
to  stir  up  their  fellow  victims.  An  authorized  investigating  com- 
mittee from  this  group  of  men  made  considerable  progress  in 
ascertaining  the  true  condition  of  tilings,  and  at  last  unearthed 
the  contract  for  building  the  roads,  by  the  terms  of  which  the 
construction  company  was  released  from  any  obligation  to  com- 
plete them  after  it  had  used  up  all  its  money.  It  then  appeared 
that  the  railroad  companies  had  paid  at  the  rate  of  §25,000  a 
mile  for  fifty-five  miles  of  road  which  had  not  been  constructed. 
J'rom  time  to  time  Forbes,  to  prevent  if  possible  an  open  breach 
in  the  C.  B.  &  Q.  board,  had  tried  to  get  the  directors  who  were 
members  of  the  construction  company  to  agree  to  some  act  of 


EARLY  AMERICAN   CONDITIONS  89 

restitution  to  the  bondlioklers,  proposing  to  join  them  as  a  fellow 
director  in  bearing  his  share  of  the  burden  and  the  blame  ;  but 
now,  the  bringmg  to  light  of  this  contract,  of  the  vicious  clause 
in  which  the  Boston  contractor-directors  declared  that  they  had 
been  wholly  ignorant,  at  the  same  time  that  it  was  further  proof 
of  the  need  of  a  new  dispensation,  rendered  a  peaceful  adjust- 
ment highly  improbable.  Nevertheless,  as  the  followmg  appeal 
to  one  of  these  men  shows,  Forbes  left  nothing  undone  to  prevent 
the  personal  estrangements  that,  to  a  man  of  his  sense  of  loyalty, 
seemed  nothing  short  of  a  calamity. 

The  proposition  which  I  made  yesterday  would,  I  think,  preserve  suffi- 
cient harmony  in  our  circle  to  enable  us,  or  most  of  us,  to  work  together 
for  the  common  good.  If  the  investigating  committee  will  agree  to  accept 
it  and  recommend  it  as  the  best  thing  practicable,  it  will  relieve  them  of 
the  necessity  of  presenting  to  the  bondholders  the  alternative ;  what  blame 
their  report  must  involve  I  shall,  under  this  proposition,  take  my  just 
share  of. 

You  who  went  into  the  construction  company  then  holding  a  contract 
for  getting  possession  of  all  the  bonds  and  assets  of  the  River  Roads,  with 
a  clause  added  relieving  them  from  any  obligation  to  huild  the  roads,  and 
under  which  the  bonds  you  recommended  have  scattered  ruin  among  large 
numbers  of  innocent  people,  have  placed  yourselves  in  a  most  unfortunate 
position.  No  matter  how  thoughtlessly  you  assumed  this  position,  no  mat- 
ter how  innocent  of  intended  harm  to  others,  you  have  done  the  harm, 
and  by  concealing  from  me  the  fact  that  you  had  an  interest  as  contractor 
behind  your  interest  as  a  bondholder  of  the  River  Roads  and  director  of 
C.  B.  &  Q.,  you  have  led  me  to  join  in  causing  the  mischief. 

I  have  offered  to  join  you  in  a  very  slight  measure  of  reparation  for 
our  folly  and  neglect  —  I  now  once  more  ask  you  in  the  name  of  our  long 
tried  friendship  to  accept  my  offer.i 

Feeling  as  strongl}-  as  he  did  the  pain  of  a  personal  breach, 
Forbes  held  back,  till  almost  too  late,  from  the  alternative  of 
war,  —  tliat  is,  a  campaign  to  oust  enough  of  the  opposing  di- 
rectors at  the  coming  annual  election  of  the  C.  B,  &  Q.  board 
to  give  his  party  control.  But  when  fight  was  at  last  forced 
upon  him,  he  flung  himself  hito  the  struggle  with  all  his  wonted 
zest  and  relentlessness.  His  two  l)attlefields  were  the  meeting; 
of  the  Dubuque  bondlioldcrs  in  Boston  on  February  17,  to  hear 

1  February  13,  1875. 


•10  KAll.WA^     I'Kor.LKMS 

the  ivptn-t  ot"  the  invi'sti«;-atii\«'"  connnittcc,  and  tlic  aiimial  meet- 
iiiLi;  ot  llu'  ('.  r>.  vV  ty|.  stocklioldcis  in  ('lii(an'(»  «m  l'\'l)nuiry  24. 
Tlu- stow  t)l  the  cniiicsis  is  l)csi  i;i\fii  in  ilic  animated  narrative 
1)1'  llio  LTeneral-in-cliift',  ^\^itl(•n  to  a  nicnihci'  of  his  family  while 
the  i;'low  of  hallle  was  si  ill  on  him. 

Wi'  had  on  tlic  wliolc  iiiiitc  a  lively  time,  of  which  the  scraps  scut  will 
uivt'  YOU  sonic  hints.  INihaps  the  most  dramatic  iierformance  was  our 
uicftiui;,  a  week  ai;'o  Wednesday,  of  DnhiKine  victims  (our  second  Dubuque). 
At  the  tirst  one,  two  weeks  earlier,  I  liad  given  our  associates  the  first  of 

the  Sil)vlline  leaves,  to  accept  a  very  soft  jiath  ojieued  to  them  ;  but  8 

the  niagnitieent,  wrapped  in  his  ])anoply  of  law  and  self-sulHciency,  coolly 
declined,  as  if  he  had  spoken  and  thi'  world  must  bow  (and  no  small  dog- 
like  me  must  bow-wow  !).  Well,  when  the  second  day  of  fate  was  approach- 
ing, I  spent  Sunday  in  cooking  another  dish  which  I  offered  them,  a  good 
deal  harder  to  digest  than  the  first  but  still  eminently  proper  and  quite 

within  limits.    This  I  begged  B to  accept,  adopt  and  advocate,  and 

thus  avoid  [a  fight].  This  was  declined  as  indigestible,  but  with  less  con- 
fidence, for  the  skies  had  begun  to  lower  and  my  appeal  to  B was 

solemn.  They  w^ere  blinded  and  obstinate,  so  on  AVednesday  we  went  to 
the  meeting  ignorant  whether  they  would  skulk  or  fight.  In  a  room  full 
of  some  one  hundred  or  one  hundred  and  fifty  indignant  bondholders, 
we  found  my  old  friend at  the  front  like  a  lion  at  bay,  the  others  de- 
serting him  and  kee[)ing  in  the  background.  Clifford  was  chairman;  and 
Charles  Bow^ditch,  secretary  of  the  investigating  committee,  read  the  report, 
which  might  well  be  called  the  indictment,  and  which  was  very  consider- 
ably made  up  of  my  testimony  —  the  C.  B.  &  Q.  directors  having  dodged 

the  most  important  points.    This  brought to  his  feet,  and  you  have 

read  his  S2ieech,  fired  directly  at  me,  so  that  the  chair  had  frecjuently  to 
call  him  to  address  the  chair.  He  is  a  very  powerful  speaker,  and  of  course 
I  was  like  a  small  mouse  under  the  whiskers  of  grimalkin,  or  of  a  fierce 
bull-terrier!  You  have  had  the  speeches,  so  I  will  only  give  you  these 
outlines  of  the  scene,  which  lasted  from  eleven  to  about  three.  My  best 
speeches  amounted  to  two  or  three  words,  interjected  here  and  there  in  the 

chinks  of 's  oratory,  but  which  found  the  holes  in  his  armor.    Getting 

through  this,  wearied  and  full  of  bad  air,  (iriswold  and  AVill  [W.  II.  Forbes] 
and  I  had  to  take  up  the  question  of  w^hat  next?  Should  we  go  on  fighting 
from  the  outside,  or  should  we,  with  only  tliree  days'  time,  try  to  change 
the  Board?  .  .  . 

They  had  been  getting  proxies  for  the  annual  meeting  of  24th  Febru- 
ary ever  since  2()th  January,  while  we  had  Thursday,  Friday,  and  Saturday 
to  work  our  coup  d'etat  in,  as  Will  and  Griswold  had  to  leave  Saturday 
afternoon  for  Chicago,  if  we  were  to  make  the  fight !    We  determined  to 


EARLY  AMERICAN  CONDITIONS  91 

try  it,  and  at  once  had  to  frame  advertisements,  choose  our  list  of  directors 
and  get  them  all  into  the  New  York,  Albany,  and  Boston  papers  by  tele- 
graph, also  to  get  the  stenographer  to  write  out  the  pithy  parts  of  his 
Uubuque  report  and  send  this  off  to  New  York  by  telegraph.  We  did  not 
know  then  how  much  the  press  were  interested  in  the  subject.  We  found 
afterwards  that  they  had  one  or  two  stenographers,  and  the  Tribune  re- 
porter sent  on  1000  words  by  wire  that  afternoon.  Then  I  had  to  write 
letters  and  telegrams,  and  talk,  and  do  everything  but  sleep !  In  brief  we 
had  a  good  old  war-time.  P.  W.  Chandler  says  there  had  not  been  so  much 
excitement  in  Boston  any  day  for  thirty-five  years  (he  meant  in  business 
circles)  as  the  day  our  advertisement  came  out.  On  Wednesday  2-lth,  Will 
and  Griswold  in  Chicago  had  22,000  majority  or  say  about  90,000  votes 
out  of  155,000  that  were  thrown,  and  carried  our  whole  ticket  except 
T.  J.  Coolidge  —  that  tender-hearted  old  Green  ordering  his  large  batch  of 

votes  thrown  for  I) ,  and  thus  electing  him.    He  however  is,  I  guess, 

docile  as  a  kitten,  and  I  have  no  doubt  we  can  now  have  our  own  way  on 
all  reasonable  things,  and  you  know  I  never  want  any  other.  Will  got 
back  last  night,  and  now,  the  fight  being  over,  the  work  begins,  for  with 
victory  will,  I  fear,  come  responsibility  and  care.  It  would  have  been  far 
easier,  just  to  have  stepped  out  and  sold  my  stock,  and  had  an  easy  life ; 
and  I  expect  to  repent  not  doing  so.^ 

The  significance  of  this  victory  was  shown  in  the  immediate 
appointment  of  Cjeorge  Tyson  as  auditor,  "  a  very  good  and 
forcible  one,"  and  with  his  arrival  m  Chicago  a  new  era  began 
m  the  company's  methods  of  accounting.  The  River  Iloads  were 
sold  to  the  Cliicago,  ^Milwaukee,  and  St.  Paul,  and  the  claims  of 
the  bondholders  of  these  roads  upon  the  C'.  B.  &  Q.  directors 
who  had  reconnnended  the  Ijonds  were  recognized,  though  the 
amount  of  money  restored  to  the  victims  was  necessarily  small. 
Since  those  of  the  contractor-directors  who  still  remained  on  the 
board  could  not  fail  to  see  that  the  success  of  the  men  and 
measures  that  they  had  opposed  had  put  their  property  on  a 
solider  basis  than  ever  before,  it  was  worth  while  for  them  to 
swallow  their  pride  for  the  sake  of  remaining  in  the  family  and 
sharing  in  its  prosperity, 

Henry  G.  PEAiisoN 

1  February  2(5  and  28,  187.5. 


iir 

STANDAKl)    OIL   REBATES i 

''I'^IIE  apathy  ami  inaction  which  naturally  How  from  a  great 
J-  defeat  lay  over  the  Oil  Regions  of  Northwestern  Pennsyl- 
vania long  after  the  compromise  with  Jolm  D.  Rockefeller  in 
1880,  followed,  as  it  was,  hy  the  combination  with  the  Standard 
of  the  great  independent  seaboard  pipe  line  which  had  grown 
up  under  the  oil  men's  encouragement  and  patronage.  Years 
of  war  with  a  humiliating  outcome  had  inspired  the  producers 
with  the  conviction  that  fighting  was  useless,  that  they  were 
dealing  with  a  power  verging  on  the  superhuman,  —  a  power 
carrying  concealed  weapons,  fighting  in  the  dark,  and  endowed 
with  an  altogether  diabolic  cleverness.  Strange  as  the  statement 
may  appear,  there  is  no  disputing  that  by  1884  the  Oil  Regions 
as  a  whole  looked  on  Mr.  Rockefeller  with  superstitious  awe. 

The  effect  of  this  dread  w%as  deplorable,  for  it  intensified  the 
feeling,  now  widespread  in  the  Oil  Regions,  that  it  was  useless 
to  make  further  effort  at  a  combined  resistance.  And  yet  these 
men,  who  were  now  lying  too  supine  in  ]\Ir.  Rockefeller's  steel 
glove  even  to  squirm,  had  laid  the  foundation  of  freedom  in  the 
oil  business.  It  has  taken  thirty  years  to  demonstrate  the  ines- 
timable value  of  the  efforts  which  in  1884  they  regarded  as 
futile  —  thirty  years  to  build  even  a  small  structure  on  the 
foundation  they  had  laid,  though  that  much  has  been  done. 

The  situation  was  saved  at  this  critical  time  by  individuals 
scattered  through  the  oil  world  who  were  resolved  to  test  the 
validity  of  Mr.  Rockefeller's  claim  that  the  coal-oil  business 
belonged  to  him.  "  We  have  a  right  to  do  an  independent 
business,"  they  said,  "  and  we  propose  to  do  it."     They  began 

1  From  The  Histoiy  of  tlu;  Standard  Oil  Company,  by  Ida  M.  Tarbell,  pub- 
lished by  McClure,  Phillips  &  Co.,  New  York,  1904.  By  permission.  Rebating 
in  general  is  treated  historically  and  critically  in  Kipley's  Kailroads:  Kates  and 
Regulation,  chap.  vi. 

'J2 


STANDARD  OIL   REBATES  93 

this  effort  by  an  attack  on  the  weak  spot  in  Mr.  Rockefeller's 
armor.  The  twelve  years  just  passed  had  taught  them  that  the 
realization  of  Mr.  Rockefeller's  great  purpose  had  been  made 
possible  by  his  remarkable  manipulation  of  the  railroads.  It 
was  the  rebate  which  had  made  the  Standard  Oil  Trust,  the 
rebate,  amplified,  systematized,  glorified  into  a  power  never 
equaled  before  or  since  by  any  business  of  the  country.  The 
rebate  had  made  the  trust,  and  the  rebate,  in  spite  of  ten  years 
of  combination,  Petroleum  Associations,  Producers'  Unions, 
resolutions,  suits  in  equity,  suits  in  quo  warranto,  appeals  to 
Congress,  legislative  investigations  —  the  rebate  still  was  Mr. 
Rockefeller's  most  effective  weapon.  If  they  could  wrest  it  from 
his  hand  they  could  do  business.  They  had  learned  something 
else  in  this  period  —  that  the  whole  force  of  public  opinion  and 
the  spirit  of  the  law  were  against  the  rebate,  and  that  the  rail- 
roads, knowing  this,  feared  exposure  of  discrimination,  and 
could  be  made  to  settle  rather  than  have  their  practices  made 
public.  Therefore,  said  these  individuals,  we  propose  to  sue 
for  rebates  and  collect  charges  until  we  make  it  so  harassing 
and  dangerous  for  the  railroads  that  they  will  shut  down  on 
Mr.  Rockefeller. 

The  most  interesting  and  certainly  the  most  influential  of 
these  ]3rivate  cases  was  that  of  Scofield,  Shurmer  &  Teagle, 
of  Cleveland,  one  of  the  firms  which,  in  1876,  entered  into  a 
"  joint  adventure  "  with  Mr.  Rockefeller  for  limiting  the  out- 
put and  so  holding  up  j^rices.  The  adventure  had  been  most 
successful.  The  profits  were  enormous.  Scofield,  Shurmer  & 
Teagle  had  made  thirty-four  cents  a  barrel  out  of  their  refinery 
the  year  before  the  "  adventure."  With  the  same  methods  of 
manufacture,  and  enjoying  simply  Mr.  Rockefeller's  control  of 
transportation  rates  and  the  enhanced  prices  caused  by  limiting 
output,  they  made  '12.52  a  barrel  the  first  year  after.  This  was 
the  year  of  the  Standard's  first  great  coup  in  refined  oil.  The 
dividends  on  88,000  barrels  this  year  were  $222,047,  against 
$41,000  the  year  before.  In  four  years  Scofield,  Shurmer  & 
Teagle  paid  Mr.  Rockefeller  $315,345  on  his  investment  of 
$10,000  —  and  rebates. 


94  i;aii.\\a\   tkoi'.j.ems 

Aftor  four  years  the  Standard  beg'aii  to  complain  that  their 
partners  in  the  ailvontnre  were  relinin<^  too  nuieh  oil  —  the  first 
year  the  hooks  showtul  they  had  exceeded  their  85,000-barrel 
limitation  hy  nearly  oOOO,  the  second  year  by  2000,  the  tliird 
hy  10,000,  the  fourth  hy  5000.  Dissatisfied,  the  Standard 
demanded  that  the  firm  pay  them  tlie  entire  profit  upon  the 
excess  refined ;  for,  claimed  Mr.  Rockefeller,  our  monopoly  is 
so  perfect  that  we  would  have  sold  the  excess  if  you  had  not 
broken  the  contract,  consequently  the  profits  belong  to  us. 
Scofield,  Shurmer  &  Teagle  paid  half  the  profit  on  the  excess, 
but  refused  more,  and  they  persisted  in  exceeding  their  quota; 
then  INIr.  Rockefeller,  controlling  by  this  time  the  crude  supply 
in  Cleveland  through  ownership  of  the  pipe  lines,  shut  down 
on  their  crude  supply.  If  they  wn)uld  not  obey  the  contract  of 
their  own  will  they  could  not  do  business.  The  firm  seems  not 
to  have  been  frightened.  "  We  are  sorry  that  you  refuse  to  fur- 
nish us  crude  oil  as  agreed,"  they  wrote  Mr.  Rockefeller ;  "  we 
do  not  regard  the  limitation  of  85,000  barrels  as  binding  upon  us, 
and  as  we  have  a  large  number  of  orders  for  refined  oil  we  must 
fill  them,  and  if  you  refuse  to  furnish  us  crude  oil  on  the  same 
favorable  terms  as  yourselves,  we  shall  get  it  elsewhere  as  best 
we  can  and  hold  you  responsible  for  its  difference  in  cost." 

Mr.  Rockefeller  s  reply  was  a  prayer  for  an  injunction  against 
the  members  of  the  firm,  restraining  them  individually  and  col- 
lectively "  from  distilling  at  their  said  works  at  Cleveland, 
Ohio,  more  than  85,000  barrels  of  crude  petroleum  of  forty-two 
gallons  each  in  every  year,  and  also  from  distilling  any  more 
than  42,500  barrels  of  crude  petroleum  of  forty-two  gallons 
each,  each  and  every  six  months,  and  also  from  distilling  any 
more  crude  petroleum  until  the  expiration  of  six  months  from 
and  after  July  20,  1880,  and  also  from  directly  and  indirectly 
engaging  in  or  being  concerned  in  any  business  connected  with 
petroleum  or  any  of  its  products  except  in  connection  with  the 
j)laintiff  under  their  said  agreement,  and  that  on  the  final  hear- 
ing of  this  case  the  said  defendants  may  in  like  manner  be 
restrained  and  enjoined  from  doing  any  of  said  acts  until  the 
expiration  of  said  agreement,  and  for  such  other  and  further 


STANDARD  OIL   REBATES  95 

relief  in  the  premises  ns  equity  can  give."  In  this  petition, 
really  remarkable  for  its  unconsciousness  of  what  seems  obvious 
—  that  the  agreement  was  preposterous  and  void  because  eoT\- 
fessedly  in  restraint  of  trade  —  the  terms  of  the  joint  adventure 
are  renewed  in  a  way  to  illustrate  admirably  the  sort  of  tactics 
with  refiners  which,  at  this  time,  was  giving  Mr.  Rockefeller 
his  extraordinary  power  over  the  price  of  oil.^ 

Scofield,  Shurmer  &  Teagle  did  not  hesitate  to  take  up 
the  gauntlet,  and  a  remarkable  defence  they  made.  In  their 
answer  they  declared  the  so-called  agreement  had  at  all  times 
been  "  utterly  void  and  of  no  effect  as  being  by  its  terms  in 
restraint  of  trade  and  against  public  policy."  They  declared 
that  the  Standard  Oil  Company  had  never  kept  the  terras  of 
the  agreement,  that  it  had  intentionally  withheld  the  benefits 
of  the  advantages  it  enjoyed  in  freight  contracts,  and  that  it 
now  was  pumping  crude  oil  from  the  oil  regions  to  Cleve- 
land at  a  cost  of  about  twelve  cents  a  barrel  and  charging 
them  (Scofield,  Shurmer  &  Teagle)  twenty  cents.  They  denied 
that  the  Standard  had  sustained  any  damage  through  them, 
but  claimed  that  their  business  had  been  carried  on  at  a  large 
profit.  "  There  is  such  a  large  margin  between  the  price  of 
crude  oil  and  refined,"  declared  the  defendants,  "that  the  manu- 
facture and  sale  of  refined  oil  is  attended  with  large  profit ;  it 
is  impossible  to  supply  the  demand  of  the  public  for  oil  if 
the  business  and  refineries  of  both  plaintiff  and  defendant  are 
carried  on  and  run  to  their  full  capacities,  and  if  the  business 
of  the  defendants  were  stopped,  as  prayed  for  by  the  plaintiff, 
it  would  result  in  a  still  higher  price  for  refined  oil  and  the 
establishment  of  more  perfect  monopoly  in  the  manufacture 
and  sale  of  the  same  by  plaintiff."  To  establish  such  a  mo- 
nopoly, the  defendants  went  on  to  declare,  had  been  the  sole 
object  of  the  Standard  Oil  Company  in  making  this  contract 
with  them,  and  similar  ones  with  other  firms,  to  establish 
a  monopoly   and   so   maintain   unnaturally    high    prices,^    and 

^  See  Appendix,  Number  42,  Standard  Oil  Company's  Petition  for  Relief 
and  Injunction. 

2  See  Appendix,  Number  43,  Answer  of  William  C.  Scofield  et  al. 


•)(i  KAii.WAV   ri;()i;Li:Ms 

coriiiinly  Scotu'ld,  SluuiiuM'  i^.  Ti'agle  knew  whereof  they  swore, 
for  tlu'V  had  shaii'd  in  ihe  sj)()ils  of  the  winter  of  187(5  and 
1877,  and  at  this  very  period,  October,  1880,  they  were  wit- 
nessint^  an  attempt  to  repeat  the  coup. 

The  I'harL^'e  of  inoiu)poly  Scolield,  Shurmer  &  Teagle  sus- 
tained by  a  reniarkal)le  array  of  allidavits  —  the  uiost  damaging' 
si't  for  the  Stanilard  Oil  (\)nipany  which  had  ever  been  brought 
together.  It  contained  tlie  alTidavits  of  various  individuals  who 
had  been  in  the  refining  business  in  Cleveland  at  the  time  of 
the  South  Improvement  Company  and  who  had  sold  out  in  the 
panic  caused  by  it.  It  contained  a  review  of  the  havoc  which 
that  scheme  and  the  manipulation  of  the  railroads  by  the  Stand- 
ard  which   followed    it    had   caused   in   the    refining    trade   in 

Pennsylvania,  and  it  gave  the  affidavits  of  Mrs.  B and  of 

her  secretary  and  others  concerning  the  circumstances  of  her 
sale  in  1878.  The  affidavits  filed  by  John  D.  Rockefeller, 
Oliver  H.  Payne,  and  Henry  M.  Flagler  in  reply  to  the  set 
presented  by  Scofield,  Shurmer  &  Teagle  are  curious  reading. 
From  the  point  of  view  of  our  present  knowledge  they  deny  a 
number  of  things  now  known  to  be  true.^ 

It  was  not  necessary,  however,  for  the  defendants  to  have 
presented  their  elaborate  array  of  evidence  to  support  the 
charge  of  intended  monopoly.  The  character  of  the  agreement 
itself  was  sufficient  to  prevent  any  judge  from  attempting  to 
enforce  it.  The  amazement  was  that  the  Standard  Oil  Company 
ever  had  the  hardihood  to  ask  for  its  enforcement.  "  That  it 
should  venture  to  ask  the  assistance  of  a  court  of  equity  to 
enforce  a  contract  to  limit  the  production  and  raise  the  price  of 
an  article  of  so  universal  use  as  kerosene  oil,"  said  the  Chicago 
Tribune,  "  shows  that  the  Standard  Oil  Company  believed  itself 
to  have  reached  a  height  of  power  and  wealth  that  made  it  safe 
to  defy  public  opinion."  This  case  is  not  the  only  one  belong- 
ing to  the  period  which  goes  to  support  the  opinion  of  the 
Tribune. 

Scofield,  Shurmer  &  Teagle  were  now  obliged  to  stand  on 
their  own  feet.    They  could  refine  all  the  oil  they  wished,  but 

^  See  Appendix,  Number  44,  Affidavit  of  .John  D.  Rockefeller. 


STANDARD   OIL   REBATES  97 

they  must  make  their  own  freight  contracts,  and  they  found 
rates  when  you  worked  with  Mr.  Rockefeller  were  vastly  dif- 
ferent from  rates  when  you  competed  with  him.  The  agent  of 
the  Lake  Shore  Railroad,  by  which  most  of  their  shipments 
went,  told  them  frankly  that  they  could  not  have  the  rates  of 
the  Standard  unless  they  gave  the  same  volume  of  business. 
The  discrimination  against  them  was  serious.  For  instance,  in 
1880,  when  the  Standard  paid  sixty -five  cents  a  barrel  from 
'  Cleveland  to  Chicago,  Scofield,  Shurmer  &  Teagle  paid  eighty. 
From  April  1  to  July  1,  1881,  the  Standard  paid  fifty-five  cents 
and  their  rival  eighty  cents ;  from  July  1  to  November  1,  1881, 
the  rates  were  thirty-five  and  seventy  cents  respectively,  and  so 
it  went  on  for  three  years,  when  the  firm,  despairing  of  any 
change,  took  the  case  into  court.  This  case,  fought  through 
all  the  courts  of  Ohio,  and  in  1886  taken  to  the  Supreme  Court 
of  the  United  States,  is  one  of  the  clearest  and  cleanest  in 
existence  for  studying  all  the  factors  in  the  rebate  problem  — 
the  argument  and  pressure  by  which  the  big  shipper  secures 
and  keeps  his  advantage,  the  theory  and  defence  of  the  rail- 
road in  granting  the  discrimination,  the  theory  on  which  the 
suffering  small  shipper  protests,  and  finally  the  law's  point  of 
view.  The  first  trial  of  the  case  was  in  the  Court  of  Common 
Pleas,  and  the  refiners  won.  The  railroad  then  appealed  to  the 
District  Court  (the  present  Circuit  Court),  where  it  was  argued. 
So  "important  and  difficult"  did  the  judges  of  the  District 
Court  find  the  questions  involved  to  be,  that  on  the  plea  of  the 
railroad  they  sent  their  findings  of  the  facts  in  the  case  to  the 
Supreme  Court  of  the  state  for  decision,  —  a  privilege  they  had 
under  the  law  in  force  at  that  time. 

******** 

Now,  as  a  matter  of  fact,  other  propositions  in  this  same  set 
from  which  the  above  are  quoted,  find  that  Scofield,  Shurmer 
&  Teagle  offered  the  railroad  exactly  the  same  facilities  as  the 
Standard,  a  switch,  loading  racks,  exemption  from  loss  by  fire 
or  accident.!  "  The  manner  of  making  shipments  for  plaintiffs 
and   for  the  Standard  Oil  Company  was  precisely  the  same, 

^  See  Appendix,  Number  45. 


08  KAILW.W    I'Kor.IJvMS 

and  tlu'  only  lliiiii,'  to  ilislinpiisli  the  business  of  the  one 
from  the  «)iher  was  the  aot^regate  yearly  amounts  of  freight 
sliipped,"  said  .ludge  Atlierton,  of  the  Supreme  Court,  who  gave 
the  decision  on  the  findings  of  fact,  and  he  held  in  common 
with  his  predecessors  that  a  rebate  on  account  of  volume  of 
business  only  was  "  a  discrimination  in  favor  of  capital,"  and 
contrary  to  a  sound  public  policy,  violation  of  that  equality  of 
rights  guaranteed  to  every  citizen,  and  a  wrong  to  the  dis- 
favored person.  '*  We  hold,  ..."  he  said,  "  that  a  discrimina- 
tion in  the  rate  of  freights  resting  extensively  on  such  a  basis 
ought  not  to  be  sustained.  The  principle  is  opposed  to  sound 
public  policy.  It  would  build  up  and  foster  monopolies,  add 
largely  to  the  accumulated  power  of  capital  and  money,  and 
drive  out  all  enterprise  not  backed  by  overshadowing  wealth. 
With  the  doctrine,  as  contended  for  by  the  defendants,  recog- 
nized and  enforced  by  the  courts,  what  will  prevent  the  great 
grain  interest  of  the  Northwest,  or  the  coal  and  iron  interests 
of  Pennsylvania,  or  any  of  the  great  commercial  interests  of 
the  country  bound  together  by  the  power  and  influence  of  ag- 
gregated wealth  and  in  league  with  the  railroads  of  the  land, 
driving  to  the  wall  all  private  enterprises  struggling  for  exist- 
ence, and  with  an  iron  hand  thrusting  back  all  but  themselves?  " 
Judge  Atherton  was  scathing  enough  in  his  opinion  of  the  con- 
tract between  the  Lake  Shore  and  the  Standard.  Look  at  it,  he 
said,  and  see  just  wdiat  is  shown.  In  consideration  of  the  com- 
pany giving  to  the  railroad  its  entire  freight  business  in  oil, 
they  transport  this  freight  about  ten  cents  a  barrel  cheaper 
than  for  any  other  customer.  "  The  understanding  was  to  keep 
the  price  doivn  for  the  favored  customer,  but  up  for  all  others, 
and  the  inevitable  tendency  and  effect  of  this  contract  was  to 
enable  the  Standard  Oil  Company  to  establish  and  maintain  an 
overshadowing  monopoly,  to  ruin  all  other  operators  and  drive 
them  out  of  business  in  all  the  region  supplied  by  the  defend- 
ant's road,  its  branches,  and  connecting  lines." 

Judge  Atherton  was  particularl}^  hard  on  the  portion  of  the 
contract  ^  which  pledged  the  Standard  to  give  the  Lake  Shore 

1  Number  20,  Findings  of  Facts.    See  Appendix,  Number  45. 


STANDARD   OIL   REBATES  99 

all  its  freight  in  return  for  the  rebates,  and  for  this  reason:  In 
1883  a  new  road  Westward  was  opened  from  Cleveland,  the 
New  York,  Cincinnati  &  St.  Louis.  It  might  become  an  active 
competitor  in  transporting  petroleum  for  customers  other  than 
the  Standard  Oil  Company.  It  might  establish  such  a  tariff 
of  rates  that  other  operators  in  oil  might  successfully  compete 
with  the  Standard  Oil  Company.  To  prevent  this,  the  Lake 
Shore  road,  on  the  completion  of  the  new  road,  entered  into 
a  tariff  arrangement  giving  to  it  a  portion  of  the  Westward 
shipments  of  the  Standard  Oil  Company,  on  condition  of  its 
uniting  in  carrying  out  the  understanding  in  regard  to  rebates 
to  the  Standard  Oil  Company.  "How  peculiar!"  exclaimed 
Judge  Atherton.  "  The  defendant,  by  a  contract  made  in  1875, 
was  entitled  to  all  the  freights  of  the  Standard  Oil  Company, 
and  yet,  say  the  District  Court,  '  for  the  purpose  of  securing 
the  greater  part  of  said  trade,'  they  entered  into  a  contract  to 
divide  with  the  new  railroad,  if  the  latter  would  only  help  to 
keep  the  rates  down  for  the  Standard  and  up  for  everybody  else." 
Such  a  contract  so  carried  out  was,  in  the  opinion  of  the  court, 
"  not  only  contrary  to  a  sound  public  policy,  but  to  the  lax 
demands  of  the  commercial  honesty  and  ordinary  methods 
of  business." 

Another  fact  found  by  the  District  Court  incensed  Judge 
Atherton.  This  was  that  the  contract  "  was  not  made  or  con- 
tinued with  any  intention  on  the  part  of  the  defendant  to  injure 
the  plaintiffs  in  any  manner."  It  does  not  "  make  any  difference 
in  the  case,"  he  declared.  "  The  plaintiffs  were  not  doing  busi- 
ness in  1875,  when  the  contract  was  entered  into,  and,  of  course, 
it  was  not  made  to  injure  them  in  particular.  If  a  man  rides  a 
dangerous  horse  into  a  crowd  of  people,  or  discharges  loaded 
firearms  among  them,  he  might,  with  the  same  propriety,  select 
the  man  he  injures  and  say  he  had  no  intention  of  wounding 
him.  And  yet  the  law  holds  him  to  have  intended  the  prob- 
able consequences  of  his  unlawful  act  as  fully  as  if  purposely 
directed  against  the  innocent  victim,  and  punishes  him  accord- 
ingly. And  this  contract,  made  to  build  up  a  monopoly  for  the 
Standard  Oil  Company  and  to  drive  its  competitors  from  the 


Ii)(i  KAiLw.w    ri;()i;ij:.MS 

lu'Ul,  is  just  as  unlawtul  as  it'  its  provisions  had  heon  aimed 
direi'lly  against  tiu'  interests  of  the  j)lainlit"t's."  ^ 

Having  lost  their  ease  in  the  Supreme  Court  of  tlie  state, 
the  Lake  Sliore  now  appealed  to  the  Supreme  ('ourt  of  the 
Tniled  States,  and  the  reeord  was  tiled  in  Ndvend)er,  188G. 
It  was  never  heard  ;  the  railroad  evidently  concluded  it  was 
useless,  and  finally  withdrew  its  petition,  thereby  accepting  the 
decision  of  the  Supreme  Court  of  Ohio  restraining  it  from  fur- 
ther discrimination  against  Scofield,  Shurnier  &  Teagle. 

This  case,  which  was  before  the  public  constantly  during  tlie 
six  or  seven  years  following  the  breaking  up  of  the  Producers' 
Union,  in  which  the  Oil  Regions  presented  no  united  front  to 
Mr.  Rockefeller,  served  to  keep  public  attention  on  the  ruinous 
effect  of  the  rebate  and  to  strengthen  the  feeling  that  drastic 
legislation  must  be  taken  if  Mr.  Rockefeller's  exploit  was  to  be 
prevented  in  other  industries. 

One  other  case  came  out  in  this  war  of  individuals  on  the 
rebate  system,  which  heightened  the  popular  indignation  against 
the  Standard.  It  was  a  case  showing  that  the  Standard  Oil 
Company  had  not  yet  abandoned  that  unique  feature  of  its  rail- 
road contracts  by  which  a  portion  of  the  money  which  other 
people  paid  for  their  freight  was  handed  over  to  them  !  This 
peculiar  development  of  the  rebate  system  seems  to  have  be- 
longed exclusively  to  Mr.  Rockefeller.  Indeed,  a  careful  search 
of  all  the  tremendous  mass  of  materials  which  the  various  inves- 
tigations of  railroads  produced  shows  no  other  case  —  so  far  as 
the  writer  knows  —  of  this  practice.  It  was  the  clause  of  the 
South  Improvement  contracts  which  provoked  the  greatest  out- 
cry. It  was  the  feature  of  Mr.  Cassatt's  revelations  in  1877 
which  dumfounded  the  public  and  which  no  one  would  believe 
until  they  saw  the  actual  agreements  Mr.  Cassatt  presented. 
The  Oil  Regions  as  a  whole  did  not  hesitate  to  say  that  they 
believed  this  practice  was  still  in  operation,  but,  naturally, 
proof  was  most  difficult  to  secure.  The  demonstration  came  in 
1885,  through  one  of  the  most  aggressive  and  violent  inde- 
pendents which  the  war  in  oil  has  produced,  George  Rice,  of 

1  Ohio  State  Reports,  Vol.  43,  pp.  571-623. 


STANDARD  OIL   REBATES  101 

Marietta,  Ohio.  Mr.  Rice,  an  oil  producer,  had  built  a  refinery 
at  Marietta  in  1873.  He  sold  his  oil  in  the  state,  the  West,  and 
South.  Six  years  later  his  business  was  practically  stopped  by 
a  sudden  raise  in  rates  on  the  Ohio  roads  —  an  advance  of  fully 
100  per  cent  being  made  on  freights  from  Marietta,  where 
there  were  several  independent  refineries,  although  no  similar 
advance  was  made  from  Wheeling  and  Cleveland,  where  the 
Standard  refineries  were  located.  These  discriminations  were 
fully  shown  in  an  investigation  by  the  Ohio  State  Legislature 
in  1879.  From  that  time  on  Mr.  Rice  was  in  constant  difficulty 
about  rates.  He  seems  to  have  taken  rebates  when  he  could 
get  them,  but  he  could  never  get  anything  like  what  his  big 
competitors  got. 

In  1883  Mr.  Rice  began  to  draw  the  crude  supply  for  his 
refinery  from  his  own  production  in  the  Macksburg  field  of 
Southeastern  Ohio,  not  far  from  Marietta.  The  Standard  had 
not  at  that  time  taken  its  pipe  lines  into  the  Macksburg  field ; 
the  oil  was  gathered  by  a  line  owned  by  A.  J.  Brundred,  and 
carried  to  the  Cincinnati  &  Marietta  Railroad.  Now,  Mr.  Brun- 
dred had  made  a  contract  with  this  railroad  by  which  his 
oil  was  to  be  carried  for  fifteen  cents  a  barrel,  and  all  other 
shippers  were  to  pay  thirty  cents.  Rice,  who  conveyed  his  oil 
to  the  railroad  by  his  own  pipe  line,  got  a  rate  of  twenty-five 
cents  by  using  his  own  tank  car.  Later  he  succeeded  in  get- 
ting a  rate  of  17^  cents  a  barrel.  Thus  the  rebate  system  was 
established  on  this  road  from  the  opening  of  the  Macksburg 
field.  In  1883  the  Standard  Oil  Company  took  their  line 
into  the  field,  and  soon  after  Brundred  retired  from  the  pipe 
line  business  there.  When  he  went  out  he  tried  to  sell  the 
Standard  people  his  contract  with  the  railroad,  but  they  re- 
fused it.  They  describe  this  contract  as  the  worst  they  ever 
saw,  but  they  seem  to  have  gone  Mr.  Brundred  one  better,  for 
they  immediately  contracted  with  the  road  for  a  rate  of  ten 
cents  on  their  own  oil,  instead  of  the  fifteen  cents  he  was 
getting,  and  a  rate  of  thirty-five  on  independent  oil.  And  in 
addition  they  asked  that  the  extra  twenty-five  cents  the  inde- 
pendents paid  he  turned  over  to  them!    If  this  was  not  done  the 


lU'J  l;.\II.\\.\^     I'UOl'.LKMS 

Staiidanl  would  1k'  under  the  painful  necessity  of  taking  away 
its  sliipnu-nls  and  Imilding  [tipo  lines  ti)  Marietta.  Tlie  Cincin- 
nati A:  Marietta  Kadroad  at  that  time  was  in  the  hands  of  a 
reci'iwr,  oui'  riiiiieas  Pease,  described  as  a  "fussy  old  gentle- 
man, proud  ot"  his  position  and  fond  of  riding  up  and  down  the 
r(»ad  in  his  {)rivate  car."  It  is  i)robal)ly  a  good  dcscri[)ti()n. 
Certainly  it  is  cvidt-nt  from  what  follows  that  the  receiver  was 
much  "  fussed  up  "  ethically.  Anxious  to  keep  up  the  income 
oi  his  road,  Mr.  Pease  finally  consented  to  the  anangement 
the  Standard  demanded.  But  he  was  worried  lest  his  immoral 
arrangement  be  dragged  into  court,  and  wrote  to  his  counsel, 
Ivlward  S.  Kai)allo,  of  New  York  City,  asking  if  there  was  any 
way  of  evading  conviction  in  case  of  discovery. 

Upon  my  taking  possession  of  this  road  [the  receiver  wrote],  the 
question  came  up  as  to  wliether  I  would  agree  to  carry  the  Standard  Com- 
pany's oil  to  ]Marietta  for  ten  cents  a  barrel,  in  lieu  of  their  laying  a  pipe 
line  and  piping  their  oil.  I,  of  course,  assented  to  this,  as  the  matter  had 
lieen  fully  talked  over  with  the  Western  &  Lake  Erie  Railroad  Company 
before  my  taking  possession  of  the  road,  and  I  wanted  all  the  revenue  that 
could  be  had  in  this  trade. 

Mr.  O'Day,  manager  of  the  Standard  Oil  Company,  met  the  general 
freight  agent  of  the  Western  &  Lake  Erie  Railroad  and  our  Mr.  Terry, 
at  Toledo,  about  February  12,  and  made  an  agreement  (verbal)  to  carry 
their  oil  at  ten  cents  per  barrel.  But  Mr.  O'Day  compelled  ]Mr.  Terry  to 
make  a  thirty-five  cent  rate  on  all  other  oil  going  to  ^Marietta,  and  that  we 
should  make  the  rebate  of  twenty-five  cents  per  barrel  on  all  oil  shipped 
by  other  parties,  and  that  the  rebate  should  be  paid  over  to  them  (the 
Standard  Oil  Company),  thus  giving  us  ten  cents  per  barrel  for  all  oil 
shipped  to  iNIarietta,  and  the  rebate  of  twenty-five  cents  per  barrel  going 
to  the  Standard  Oil  Company,  making  that  company  say  twenty-five  dollars 
per  day  clear  money  on  George  Rice's  oil  alone. 

In  order  to  save  the  oil  trade  along  our  line,  and  especially  to  save  the 
Standard  Oil  trade,  which  would  amount  to  seven  times  as  much  as  Mr. 
Rice's,  Mr.  Terry  verbally  agreed  to  the  arrangement,  which,  upon  his 
report  to  me,  I  reluctantly  acquiesced  in,  feeling  that  I  could  not  afford  to 
lose  the  shipment  of  700  l)arrels  of  oil  per  day  from  the  Standard  Oil  Com- 
pany. But  when  Mr.  Terry  issued  instructions  that  on  and  after  Feb- 
ruary 23  the  rate  of  oil  would  be  thirty-five  cents  per  barrel  to  Marietta, 
George  Rice,  who  has  a  refinery  in  Marietta,  very  naturally  called  on  me 
yesterday  and  notified  me  that  he  would  not  submit  to  the  advance, 
because  the  business  would  not  justify  it,  and  that  the  move  was  made  by 


STANDARD   OIL   REBATES  103 

the  Standard  Oil  Company  to  crush  him  out.  (Too  true.)  Mr.  Rice  said  : 
"  I  am  willing  to  continue  the  17  i  cent  rate  which  I  have  been  paying  from 
December  to  this  date." 

Now,  the  question  naturally  presents  itself  to  my  mind,  if  George  Rice 
should  see  fit  to  prosecute  the  case  on  the  ground  of  unjust  discrimination, 
would  the  receiver  be  held,  as  the  manager  of  this  property,  for  violation 
of  the  law  V  While  I  am  determined  to  use  all  honorable  means  to  secure 
traffic  for  the  company,  I  am  not  willing  to  do  an  illegal  act  (if  this  can 
be  called  illegal),  and  lay  this  company  liable  for  damages.  Mr.  Terry  is 
able  to  explain  all  minor  questions  relative  to  this  matter.^ 

Mr.  Rapallo,  after  consulting  his  partner  and  "representa- 
tive bondholders,"  "  fixed  it "  for  the  receiver  in  the  following 
amazing  decision: 

You  may,  with  propriety,  allow  the  Standard  Oil  Company  to  charge 
twenty-five  cents  per  barrel  for  all  oil  transported  through  their  pipes  to 
your  road  ;  and  I  understand  from  Mr.  Terry  that  it  is  practicable  to  so 
arrange  the  details  that  tlie  company  can,  in  effect,  collect  this  direct  with- 
out its  passing  through  your  hands.  You  may  agree  to  carry  all  such  oil 
of  the  Standard  Oil  Company,  or  of  others,  delivered  to  your  road  through 
their  pipes,  at  ten  cents  per  barrel.  You  may  also  charge  all  other  shippers 
thirty-five  cents  per  barrel  freight,  even  though  they  deliver  oil  to  your  road 
through  their  otvn  pipes y  and  this,  I  gather  from  your  letter  and  from 
]Vlr.  Terry,  would  include  Mr.  Rice.^ 

Now,  how  was  this  to  be  done  "  with  propriety  "  ?  Simply 
enough.  The  Standard  Oil  Company  was  to  be  charged  ten 
cents  per  barrel,  less  an  amount  equivalent  to  twenty-five  cents 
per  barrel  upon  all  oil  shipped  by  Rice.  "  Provided  your  ac- 
counts, bills,  vouchers,  etc.,  are  consistent  with  the  real  arrange- 
ment actually  made,  you  will  incur  no  personal  responsibility 
by  carrying  out  such  an  arrangement  as  I  suggest."  Even  in 
case  the  receiver  was  discovered  nothing  would  happen  to  him, 
so  decided  the  counsel.  "  It  is  possible  that,  by  a  proper  appli- 
cation to  the  court,  some  person  may  prevent  you,  in  future, 
from  permitting  any  discrimination.  Even  if  Mr.  Rice  should 
compel  you,  subsequently,  to  refund  to  him  the  excess  charge 

1  Proceedings  in  Relation  to  Trusts,  House  of  Representatives,  1888,  Kcport 
No.  .'3112,  pp.  575-576. 

2  See  Appendix,  Number  46,  Letter  of  Edward  S.  Rapallo  to  General 
Phineas  Pease,  receiver  Cleveland  &  Marietta  Railroad  Company. 


Ill  I  j;ail\\a\    ria)i;hi:MS 

ovi'V  the  Staiidunl  Oil  (\->ini);iny,  the  result  would  uot  be  a  loss 
(o  your  road,  taking  into  consideration  the  receipts  from  the 
Standard   Oil  Company ." 

Fortitieil  by  his  counsel,  Keceiver  Pease  put  the  arrangement 
into  force,  anil  beginning  with  March  20,  1885,  a  joint  agent  of 
the  Standard  pipe  line  and  of  the  Cincinnati  &  Marietta  road 
collected  thirty-five  cents  per  barrel  on  the  oil  of  all  independent 
siii{ipers  from  Macksburg  to  Marietta.  Ten  cents  of  this  sum 
he  turned  over  to  the  receiver  and  twenty-five  cents  to  the  i)ipe 
line.  When  Mr.  Rice  found  that  the  rate  was  certainly  to  be 
enforced  he  began  to  build  a  pipe  of  Lis  own  to  the  Muskingum 
River,  whence  lie  was  to  ship  by  barge  to  Marietta.  By  April  26 
he  was  able  to  discontinue  his  shipments  over  the  Cincinnati 
&  Marietta  road.  This  was  uot  done  until  a  rebate  of  twenty- 
five  cents  a  barrel  had  been  paid  to  the  Standard  Oil  Company 
on  1360  barrels  of  his  oil,— $340  in  all. 

Mr.  Kice,  outraged  as  he  was  by  the  discrimination,  was 
looking  for  evidence  to  bring  suit  against  the  receiver,  but  it 
was  not  until  October  that  he  was  ready  to  take  the  matter 
into  court.  On  the  13th  of  that  month  he  applied  to  Judge 
Baxter  of  the  United  States  Circuit  Court  for  an  order  that 
Phineas  Pease,  receiver  of  the  Cleveland  &  Marietta  Rail- 
road, report  to  the  court  touching  his  freight  rates  and  other 
matters  complained  of  in  the  application.  The  order  was 
granted  on  the  same  day  the  application  was  made.  It  was 
specific.  Mr.  Pease  was  to  report  his  rates,  drawbacks,  methods 
of  accounting  for  discrimination,  terms  of  contracts,  and  all 
other  details  connected  with  his  shipment  of  oil.  No  sooner 
was  this  order  of  the  court  to  Receiver  Pease  known  than  the 
general  freight  agent,  Mr.  Terry,  hurried  to  Cleveland,  Ohio, 
to  meet  Mr.  O'Day  of  the  Standard  Oil  Company,  with  whom 
he  had  made  the  contract.  The  upshot  of  that  interview  was 
that  on  October  29,  twelve  days  after  the  judge  had  ordered 
the  contracts  produced,  a  check  for  -$840,  signed  by  J.  R.  Camp- 
bell, Treasurer  (a  Standard  pipe-line  official),  was  received  from 
Oil  City,  headquarters  of  the  Standard  pipe  line,  by  the  ageiit 
who  had  been  collecting  and  dividing  the  freight  money.    This 


STANDARD   OIL    KE HATES  105 

clieck  for  ^340  was  the  amount  the  pipe  line  had  received  on 
Mr.  Rice's  shipments  between  March  20  and  April  25.  The 
agent  was  instructed  to  send  the  money  to  the  receiver,  and 
later,  by  order  of  the  court,  the  money  was  refunded  to  Mr. 
Rice.    But  the  Standard  was  not  out  of  the  scrape  so  easily. 

Receiver  Pease  filed  his  report  on  November  2,  but  the  judge 
found  it  "  evasive  and  unsatisfactory,"  and  further  information 
was  asked  for.  Finally  the  judge  succeeded  in  securing  the 
correspondence  between  Mr.  Pease  and  Mt.  Rapallo,  quoted 
above,  and  enough  other  facts  to  show  the  nature  of  the  dis- 
crimination. He  lost  no  time  in  pronouncing  a  judgment,  and 
he  did  not  mince  his  words  in  doing  it: 

But  why  should  Rice  be  required  to  pay  250  per  cent  more  for  the 
carriage  of  his  oil  than  was  exacted  from  his  competitor?  The  answer  is 
that  thereby  the  receiver  could  increase  his  earnings.  This  pretense  is  not 
true ;  but  suppose  it  was,  would  that  fact  justify,  or  even  mitigate,  the 
injustice  done  to  Rice  ?  May  a  receiver  of  a  court,  in  the  manageinent  of 
a  railroad,  thus  discriminate  between  parties  having  equal  claim  upon  him, 
because  thereby  he  can  accumulate  money  for  the  litigants  ?  It  has  been 
repeatedly  adjudged  that  he  cannot  legally  do  so.  Railroads  are  constructed 
for  the  common  and  equal  benefit  of  all  persons  wishing  to  avail  them- 
selves of  the  facilities  which  they  afford.  While  the  legal  title  thereof  is 
in  the  corporation  of  individuals  owning  them,  and  to  that  extent  private 
property,  they  are  by  the  law  and  consent  of  the  owners  dedicated  to  the 
public  use.  By  its  charter  and  the  general  contemporaneous  laws  of  the 
state  which  constitute  the  contract  between  the  public  and  the  railroad 
company  —  the  state,  in  consideration  of  the  undertaking  of  the  corpo- 
rators to  build,  equip,  keep  in  repair  and  operate  said  road  for  the  public 
accommodation,  authorized  it  to  demand  reasonable  compensation  from 
every  one  availing  himself  of  its  facilities,  for  the  service  rendered.  But 
this  franchise  carried  with  it  other  and  correlative  obligations. 

Among  these  is  the  obligation  to  carry  for  every  person  offering  business 
under  like  circumstances,  at  the  same  rate.  All  unjust  discriminations  are 
in  violation  of  the  sound  public  policy,  and  are  forbidden  by  law.  We  have 
had  frequent  occasions  to  enunciate  and  enforce  this  doctrine  in  the  past  few 
years.  If  it  were  not  so,  the  managers  of  railways  in  collusion  with  others  in 
command  of  large  capital  could  control  the  business  of  the  country,  at  least 
to  the  extent  that  the  business  was  dependent  on  railroad  transportation 
for  its  success,  and  make  and  unmake  the  fortunes  of  men  at  will. 

The  idea  is  justly  abhorrent  to  all  fair  minds.  No  such  dangerous 
power  can  be  tolerated.    Except  in  the  modes  of  using  them,  every  citizen 


h;is  tlu>  sami>  rijjjlit  (t>  (Iimm.iihI  I  lie  scrviri'  of  railroails  on  e(Hial  terms  lliat 
tlu'V  have  to  till'  use  ol"  a  |iulilic  highway  or  llit'  j^oviTiiiiiciit  mails.  Aiwl 
lu'iR'o  wlu'ii.  ill  tlif  viris.sit lull's  of  Imsiiu'ss,  a  railroad  i-orjioratioii  ht'comes 
iiisolvoiit  ami  is  st-i/i'il  Ity  tlie  court  and  plai'cd  in  the  hands  of  a  receiver 
to  bo  I'V  liim  o[>erated  pending'  tlie  litigatinn,  and  milil  the  rights  of  the 
litigants  can  l>e  judicially  ascertained  and  dcelarrd,  I  he  court  is  as  much 
bound  to  protect  the  i>ublic  interests  therein  as  it  is  to  protect  and  enforce 
the  rights  of  the  mortgagers  and  mortgagees.  But  after  the  receiver  has 
performed  all  obligations  due  tlic  luildic  and  every  member  of  it  —  that  is 
to  say,  after  carrying  i)assi'ngers  and  freight  offered,  for  a  reasonable  com- 
pensation not  exceeding  the  ma.ximum  authorized  by  lavi^,  if  such  maxi- 
mum rates  shall  have  been  prescribed,  upon  eipial  terms  to  all,  he  may 
make  for  the  litigants  as  much  money  as  the  road  thus  managed  is  capable 
of  earning. 

But  all  attempts  to  accumulate  money  for  the  benefit  of  corporators  or 
their  creditors,  by  making  one  shipper  pay  tribute  to  his  rival  in  business 
at  the  rate  of  twenty-five  dollars  per  day,  or  any  greater  or  less  sum, 
thereby  enriching  one  and  impoverishing  another,  is  a  gross,  illegal,  inex- 
cusable abuse  of  a  public  trust  that  calls  for  the  severest  reprehension. 
The  discrimination  complained  of  in  this  case  is  so  wanton  and  oppressive 
it  could  hardly  have  been  accepted  by  an  honest  man  having  due  regard 
for  the  rights  of  others,  or  conceded  by  a  just  and  competent  receiver  who 
comprehended  the  nature  and  responsibility  of  his  office  ;  and  a  judge  who 
would  tolerate  such  a  wrong  or  retain  a  receiver  capable  of  perpetrating  it 
ought  to  be  impeached  and  degraded  from  his  position. 

A  good  deal  more  Tiiight  be  said  in  condemnation  of  the  unparalleled 
wrong  complained  of,  but  we  forbear.  The  receiver  will  be  removed.  The 
matter  will  be  referred  to  a  master  to  ascertain  and  report  the  amount 
that  has  been  as  aforesaid  unlawfully  exacted  by  the  receiver  from  Rice, 
which  sum,  when  ascertained,  will  be  repaid  to  him.  The  master  will  also 
inquire  and  report  whether  any  part  of  the  money  collected  by  the  receiver 
from  Rice  has  been  paid  to  the  Standard  Oil  Company,  and  if  so,  how 
much,  to  the  end  that,  if  any  such  payments  have  been  made,  suit  may  be 
instituted  for  its  recovery.^ 

On  December  18  George  K.  Nash,  a  foimer  governor  of 
Ohio,  was  appointed  master  commissioner  to  take  testimony  and 
clear  up  the  point  doubtful  in  the  judge's  mind  —  to  whom 
had  the  extra  money  paid  by  Rice  been  paid ;  the  receiver 
declared  that  he  never  paid   the  Standard   Oil  Company  any 

1  Proceedings  in  Relation  to  Trusts,  House  of  Representatives,  1880,  Report 
No.  rj]\2,  pp.  577-578. 


STANDARD  OIL   REBATES  107 

part  of  Rice's  money.  Mr.  Nash  summoned  a  large  number  of 
witnesses  and  gradually  untangled  the  story  told  above.  Mr. 
Pease  spoke  truly,  he  had  never  paid  the  Standard  Oil  Com- 
pany any  part  of  Mr.  Rice's  money.  A  joint  agent  of  the  rail- 
road and  the  pipe  line  had  been  appointed,  at  a  salary  of 
eighty-five  dollars  a  month,  sixty  dollars  paid  by  Pease  and 
twenty-five  dollars  by  the  Standard,  who  collected  the  freight 
on  independent  shipments  and  divided  the  money  between  the 
two  parties.  It  was  from  this  agent  that  it  was  learned  that, 
twelve  days  after  Judge  Baxter  ordered  Receiver  Pease  to 
bring  his  contracts  into  court,  the  money  paid  on  Mr.  Rice's 
oil  had  been  returned  by  the  Standard  Oil  Company.^  While 
the  investigation  in  regard  to  Mr.  Rice's  oil  was  going  on,  com- 
plaints came  to  Commissioner  Nash  from  two  other  oil  works 
at  Marietta  that  they  had  been  suffering  a  like  discrimination 
for  a  much  longer  time.  The  commissioner  investigated  the 
cases  and  found  the  complaints  justified.  The  Standard  Oil 
Company  had  received  $649.15  out  of  the  money  paid  by  one 
concern  to  the  railroad  for  carrying  its  oil,  and  -$639. 75  out  of 
the  sum  paid  by  another  concern !  Both  of  these  sums  were 
returned  by  the  Standard.^ 

Of  course  the  case  aroused  violent  comment.  In  1888  it 
came  before  the  Congressional  Committee  which  was  investi- 
gating trusts,  and  an  effort  was  made  to  explain  the  twenty-five 
cents  extra  as  a  charge  of  the  pipe  line  for  carrying  oil  to  the 
railway.  Now,  the  practice  in  vogue  in  the  Oil  Regions  then 
and  now  is  that  the  purchaser  of  the  oil  pays  the  pipe-line  charge. 
The  railroad  has  nothing  to  do  with  it.  Even  if  the  Standard 
Oil  Company  puts  a  tax  on  railroads  for  allowing  them  to  take 
oil  carried  by  its  pipe  lines  —  thus  collecting  double  pay  —  the 
tax  would  not  apply  in  Mr.  Rice's  case,  for  the  oil  came  to  the 
Cincinnati  &  Marietta  road  not  through  Standard  pipes  but 
through  Mr.  Rice's  own  pipes. 

1  See  Appendix,  Number  47,  Testimony  of  F.  G.  Carrel,  freight  agent  of  the 
Cleveland  &  Marietta  liaiiroad  Company. 

2  See  Appendix,  Number  48,  Keport  of  the  Special  Master  Commissioner 
George  K.  Nash  to  tlie  Circuit  Court. 


IV 

rilK   lU  ILDING  AND  TIIK  COST  OF  THE  UNION 
PACIFIC  1 

I  T  was  not  loncc  after  the  passage  of  the  Act  of  1862  that  work 
J-  under  it  ben'an.  The  Central  Pacific  Raih"oad  Company,  to 
wliich  the  buikling  of  the  western  end  of  the  line  was  assigned, 
had  been  organized,  in  1861,  under  California  state  law.  On 
October  7,  1862,  it  formally  accepted  the  terms  offered  by  Con- 
gress, and  the  work  of  construction  began  January  8,  1863. 

The  Union  Pacific  Railroad  Company,  which  was  to  build 
the  eastern  part  of  the  line,  effected  its  temporary  organization 
according  to  the  terms  of  the  act,  and  books  for  stock  subscrip- 
tions were  opened  in  the  leading  cities  of  the  country.  Thirty- 
one  shares  2  of  'flOOO  each  were  subscribed  for,  and  117,300  paid 
in.  There  the  matter  stopped.  Railway  men  knew  that  a  mile 
of  road  in  Illinois  cost  !f!33,000  ;  in  Iowa,  !f;35,000 ;  in  the  level 
parts  of  California,  $34,000.3  ^  considerable  proportion  of  the 
able-bodied  men  of  the  country  was  in  the  army,  and  the  prices 
of  both  labor  and  materials  were  abnormally  high.  Between 
the  eastern  system  of  railways  and  the  initial  point  of  the  pro- 
posed road  was  a  gap  of  hundreds  of  miles,  making  it  necessary 
to  carry  materials  by  way  of  the  Missouri  River,  a  hazardous 
and  costly  mo.de  of  transportation.  Under  the  circumstances, 
the  capitalists  of  the  country  did  not  consider  the  Union  Pacific 
a  promising  investment. 

Meanwhile,  Thomas  C.  Durant,  of  New  York,  a  man  of  wide 
experience  in  railway  building  and  of  large  resources,  became 

1  From  History  of  the  Union  Pacific  Railway  by  Henry  Kirke  White.  The 
University  of  Chicago  Press,  1895.    By  permission. 

2  Forty-second  Congress,  third  session  ;  House  Report  No.  78,  February  20, 
1873  (Affairs  of  the  Union  Pacific  Raih-oad  Company  —  Mr.  J.  M.  Wilson, 
Chairman),  Testimony  taken  by  the  Committee,  p.  604. 

^  Congressional  Globe,  Fortieth  Congress,  second  session,  p.  2427. 

108 


BUILDING  AND  COST   OF  THE   UNION  PACIFIC    lUU 

interested  in  the  enterprise  and  took  hold  of  it  with  character- 
istic vigor.  He  not  onl}^  made  a  stock  subscription  of  his  own, 
but  also  secured  subscriptions  among  his  friends.  To  do  this 
he  advanced  for  them  the  10  per  cent  required  by  law  to  be  paid 
in  before  the  permanent  organization  could  be  effected,  and 
agreed  to  find  persons  to  take  it  off  their  hands  in  case  they 
wished  to  withdraw  from  the  venture.  On  October  29,  1863, 
2177  shares  of  -i^lOOO  each  had  been  subscribed  for  ^  and  a  board 
of  thirty  directors  was  chosen.  In  the  list  we  find  such  names 
as  August  Belmont,  of  New  York ;  C.  A.  Lambard,  of  Boston ; 
C.  S.  Bushnell,  of  New  Haven  ;  Joseph  H.  Scranton,  of  Scranton, 
Pennsylvania ;  J.  Edgar  Thompson,  of  Philadelphia ;  S.  C.  Pom- 
eroy,  of  Atchison,  Kansas,  besides  those  who  were  next  day 
chosen  officers.  These  were  :  President,  General  John  A.  Dix  ; 
Vice  President,  Thomas  C.  Durant;  Secretary,  H.  V.  Poor,  and 
Treasurer,  J.  J.  Cisco,  all  of  New  York.  Immediately  after  organ- 
ization was  effected  men  were  put  to  work,  ground  being  broken 
at  Omaha  December  2,  1863.3  xhe  sum  of  $218,000  which  had 
been  paid  in  on  stock  subscriptions  was  used  up,  and  debts  con- 
tracted for  from  $^200, 000  to  -f  300,000  more.  The  company  was 
so  hard  pressed  on  these  debts  that  it  finally  resorted  to  the  ex- 
pedient of  selling  part  of  the  materials  and  cars  to  raise  funds.* 

The  line  as  first  projected  ran  west  from  Omaha,  but  as  heavy 
grades  would  thus  be  encountered,  a  somewhat  circuitous  route 
was  finally  settled  upon,  starting  south  from  the  city.^  Still 
the  first  thirty  or  forty  miles  were  expensive. 

As  this  section  of  the  road  approached  completion  it  was 
seen  that  New  York  capitalists  were  not  to  be  induced  to  put 
the  enterprise  through ;  ^  work  must  soon  cease  for  lack  of 
funds.  On  May  12,  1864,  therefore,  a  committee  was  appointed 
to  let  a  contract  for  building  one  hundred  miles  of  road.''' 

1  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  .590. 

3  Eeport  of  the  Directors  of  the  Union  Pacific  Railroad  Company  for  1884. 

*  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  03. 

5  Ibid.,  p.  .39.  ^  Ibid.,  p.  .'59. 

''  Forty-second  Congress,  third  session  ;  House  Report  No.  77,  February  18, 
187.3  (Credit  Mobilier  Investigation  —  Mr.  Poland,  Chairman),  Testimony  taken 
by  the  Committee,  p.  305. 


Ill)  KAll.W.W    rKor.i.KMs 

The  iMuu'tiiuMit  i)f  the  Act  of  iSill  t'olU)\vecl  soon  after  this, 
tlouhlino-,  as  lias  been  said,  the  t'uiuls  from  which  to  build 
the  road. 

Even  then  the  friends  of  Durant  were  so  doubtful  of  the 
success  of  the  enterprise  that  they  availed  themselves  of  the 
ofYer  made  them  when  they  subscribed,  and  Durant  was  made 
responsible  for  three  fourths  of  the  sum  (!i!2,000,000)  required 
to  be  subscribed  before  organization  was  authorized.^ 

As  a  result  of  the  labors  of  the  committee  appointed  in  the 
preceding  May,  a  proposal  was  received  on  August  8,  ISG-l, 
from  H.  M.  Hoxie,  to  build  one  hundred  miles  of  road  at 
!J50,000  per  mile.  This  matter  was  arranged  at  New  York 
between  Durant  and  H.  C.  Crane,  who  acted  as  Hoxie's  attor- 
ney.^ Crane  was  intimately  connected  with  the  Union  Pacific 
as  stockholder,  director  and  otherwise  ;  Hoxie  was  an  employee 
of  the  road.  Oliver  Ames  says  distinctly  that  Hoxie  was  a  man 
of  no  means,^  of  no  responsibility.*  Still  Durant  declares  that 
the  Hoxie  contract  was  made  in  good  faith.^  At  any  rate  it 
was  accepted,^  and  October  4,  1864,  Hoxie  proposed  its  exten- 
sion to  cover  the  line  from  Omaha  to  the  one  hundredth  merid- 
ian. This  proposal  was  likewise  accepted.'^  So  H.  M.  Hoxie, 
whatever  his  financial  standing  may  have  been,  stood  bound  to 
construct  for  the  Union  Pacific  Company  247y4g5_  miles  of  road, 
for  which  he  was  to  receive  over  $12,000,000. 

Aside  from  the  relations  existing  between  Durant,  Crane  and 
Hoxie,  the  terms  of  the  contract  would  lead  one  to  suspect  that 
there  was  some  purpose  in  mind  other  than  that  which  appeared 
on  the  face  of  the  matter.  The  contractor  was  specifically 
exempted  from  paying  more  than  $85,000  for  any  one  bridge; 
the  excess  in  price  of  iron  above  $130  per  ton  at  Omaha  was 
to  be  borne  by  the  Company;  if  required  to  Burnetize^  ties,  an 

1  Credit  Mobilier  Inve.stisation,  p.  888  ;  Affairs  of  the  Union  Pacific  Railroad 
Company,  p.  515. 

2  Affairs  of  the  Union  Pacific  Raih'oad  Company,  Part  II,  p.  2. 
«  Ibid.,  p.  256.  ^  Ihid.,  p.  69. 

4  Ibid.,  p.  285.  6  ^Md.,  Part  11,  p.  4. 

'  Ibid.,  Part  II,  p.  4. 

*  A  proces.s  by  which  cottonvvood  ties  were  made  more  durable. 


BUILDING  AND  COST   OF  THE   UNION  PACIFIC    111 

additional  16  cents  per  tie  was  to  be  paid;  and,  most  impor- 
tant, acceptance  of  the  contract  bound  the  contractor  to  siil)- 
scribe,  or  cause  to  be  subscribed  to  the  capital  stock  of  the 
Union  Pacific,  |500,000.i 

As  early  as  September  30,  1864,  that  is,  some  time  before  its 
extension  had  been  voted,  Hoxie  had  agreed  with  Durant  to 
assign  his  contract  to  such  parties  as  he  (Durant)  might  desig- 
nate. October  7,  1864,  an  agreement  was  drawn  up  binding  its 
signers  to  take  the  contract  from  Hoxie  and  to  subscribe  for  car- 
rying it  out  the  sum  of  §1,600,000.  This  liability  was  divided 
as  follows:  Thomas  C.  Durant,  -1600,000;  C.  S.  Bushnell, 
$400,000;  Charles  A.  Lambard,  $100,000;  H.  S.  McComb, 
8100,000  ;  H.  W.  Gray,  $200,000  ;  etc.2  According  to  the  terms 
of  the  agreement  one  fourth  of  the  sums  subscribed  was  paid  in, 
$400,000  in  all,  and  this  amount  was  used  on  the  road.  The 
men  who  had  assumed  the  Hoxie  contract  now  stood  in  the  rela- 
tion of  partners,  liable  not  only  for  the  sums  subscribed,  but  to 
the  extent  of  their  fortunes.  Some  of  them  became  fearful  and 
concluded  that  it  would  be  better  to  lose  the  sums  already  sunk 
in  the  enterprise  than  to  go  on  and  take  greater  risks.'^  They 
therefore  failed  to  respond  to  the  call  for  the  second  installment 
of  their  subscriptions.* 

About  this  time,  August  1865,  an  important  step  was  taken 
in  getting  the  brothers,  Oakes  and  Oliver  Ames,  to  take  hold  of 
the  project.^  Oakes  Ames  had  become  interested  in  the  Pacific 
railway  while  a  member  of  the  Committee  on  Railroads  in  the 
House  of  Representatives,*^  and  his  personal  influence  in  Massa- 
chusetts, together  with  his  great  financial  strength,  made  him  a 
valuable  ally  of  those  wdio  had  started  the  road.  Plans  for  pro- 
ceeding were  again  discussed,  and  it  was  agreed  that  the  only 
feasible  way  to  enlist  the  necessary  capital  was  to  make  use  of 
a  construction  company.    The  scheme  of  building  railways  by 

1  Affairs  of  the  Union  Pacific  Railroad  Company,  Part  II,  p.  2. 

2  J6J(Z.,  Part  II,  p.  5. 

3  Ibid.,  p.  64,  and  Credit  Mobilier  Investigation,  p.  365. 

*  Affairs  of  the  Union  Pacific  Raih'oad  Company,  p.  365. 

''  Ibid.,  p.  4. 

^  Oakes  Ames  Memoir,  p.  5. 


1  rj  K.\11.\\A\     l'i;oP.Ll<]MS 

oiuistriu-tii)n  I'oinpiiiiii's  (Utjfaiu/.od  among  the  stockholders  was 
not  new  :  ii  h;i(l  Ix-i'ii  (liml  successfully  in  lowa.^  Exhaustive 
colli rat'ts  were  not  a  new  device.-  So  all  the  Ihiiou  Pacilic  people 
had  to  do  was  to  adapt  to  their  own  uses  methods  which  others 
had  elaborated. 

It  having  heen  decided  to  make  use  of  a  construction  com- 
pany, an  examination  of  charters  followed.  This  led  to  the  re- 
jection of  one  which  Bushnell  had  bought  in  Connecticut,^  and 
to  the  choice  of  a  Pennsylvania  corporation  as  better  meeting 
their  needs.  This  was  the  Pennsylvania  Fiscal  Agency,  which 
had  been  chartered  to  build  railways  in  the  South  and  West* 
by  an  act  of  the  state  legislature  of  Pennsylvania,  approved 
November  1,  ISSO.'"*  On  the  fifth  of  the  same  month  books 
had  been  opened  in  Philadelphia  and  stock  subscribed  for.^ 
Later  it  became  known  that  the  organization  then  effected  was 
irregular,  and  it  was  treated  as  a  nullity."  May  29,  1863,  books 
were  again  opened,  stock  subscribed,  the  required  per  cent 
paid  in,  and  organization  properly  effected.^  March  2,  1864, 
Durant  opened  negotiations  for  the  purchase  of  the  charter 
rights  of  the  Fiscal  Agency,  and  on  the  following  day  the  bar- 
gain was  closed,  Durant  paying  to  the  original  subscribers  what 
they  had  invested,  they  assigning  their  stock.^  Previous  to  this 
time  there  had  been  no  connection  whatever  between  the  men 
of  the  Union  Pacific  and  of  the  Fiscal  Agency. 

On  March  26,  1864,  an  amendatory  act  changed  the  name 
from  the  Pennsylvania  Fiscal  Agency  to  the  Credit  Mobilier  of 
America,^*^  and  as  such  it  later  became  widely  known.  Thus  the 
Credit  Mobilier  became  an  adjunct  of  the  Union  Pacific  Rail- 
road Company. 

The  reason  for  securing  such  a  company  as  the  Credit 
Mobilier  is  obvious.    No  firm  could  be  induced  to  undertake 

1  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  1G4. 
^  Ibid., -p.  420.  3J6id.,p.  39. 

♦  Credit  Mobilier  Investigation,  p.  199. 
^  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  7. 
^  Ibid.,  p.  144.  ^  Ibid.,  p.  146. 

7  Ibid.,  p.  146.  0  Ibid.,  p.  147. 

1'^  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  9. 


BUILDING  AND  COST  OF  THE   UNION  PACIFIC  113 

the  building  of  the  road  if  each  member  was  liable  to  the  extent 
of  his  property.^  The  risk  was  too  great.  But  it  was  believed 
that  if  a  company  was  secured  in  which  the  liability  was  limited 
to  the  amount  of  the  subscription  to  stock,  as  in  the  Credit 
Mobilier,  capital  could  be  enlisted.  This  proved  to  be  the  case, 
and  the  necessary  funds  were  quickly  subscribed. 

As  a  matter  of  convenience  the  offices  of  the  Credit  Mobilier 
were  to  be  in  New  York,  where  the  headquarters  of  the  railway 
were  located,  but  under  the  terms  of  its  charter  it  could  not 
cease  to  be  a  Pennsylvania  corporation.  To  get  around  this 
difficulty,  the  device  of  a  New  York  branch  was  resorted  to. 
The  corporate  existence  of  the  Credit  Mobilier  was  maintained 
in  Pennsylvania,  the  board  of  directors,  the  officers,  and  the 
executive  committee  being  elected  at  meetings  held  in  Phila- 
delphia. This  executive  committee  then  chose  from  among  the 
stockholders  of  the  Credit  Mobilier  and  of  the  Union  Pacific,  a 
number  of  men  to  constitute  what  they  called  a  railway  bureau.^ 
This  body  had  its  office  in  a  room  adjoining  the  offices  of  the 
Union  Pacific.^  The  executive  committee  attended  to  all  the 
larger  fiscal  transactions,  while  the  railway  bureau  had  charge 
of  the  construction  of  the  road,  payments  for  work,  and  other 
details.*  Under  this  arrangement  the  work  progressed  satis- 
factorily. Part  of  the  necessary  capital  of  the  Credit  Mobilier 
was  secured  by  transferring  to  its  books  the  subscriptions  which 
had  been  made  for  carrying  out  the  Hoxie  contract  by  the  men 
who  assumed  it.^  They  were  relieved  of  their  former  obliga- 
tions by  the  transfer  of  the  Hoxie  contract  to  the  corporation 
of  which  they  had  just  become  stockholders.  This  change  was 
made  March  15,  1865,^  some  six  months  after  they  had  taken 
the  contract  off  Hoxie's  hands.  The  transferred  subscriptions, 
•fl,600,000,  were  supplemented  by  others,  securing  for  the 
Credit  Mobilier  a  working  capital  of  upwards  of  $2,000,000,^ 

1  Affairs  of  the  Union  Pacific  Railroad  Company,  pp.  39-40. 

2  76id.,  pp.  1.31,  148. 

^Ibid.,  p.  153.  *  Ibid.,  p.  148. 

^  Credit  Mobilier  Investigation,  p.  366. 
^  Affairs  of  the  Union  Pacific  llailroad  Company,  p.  64. 
''  Credit  Mobilier  Investigation,  p.  366. 


1 1 1  i;aii.\v.\v  I'Koi'.unis 

;uul  ilie  \V(i]-k.  \\lui'li  ollicrwisc  must  luive  stopped  within  sixty 
ilays,  was  pushod  vii^orously.' 

Hut  luiti'  how  incongruous  was  this  arrangement.  The  Credit 
MohiliiT  w  as  nominally  a  IV'unsylvania  corporation,  while  at  the 
Pennsylvania  oriice  no  business  was  done.  The  New  York  con- 
cern was  in  form  only  a  branch  of  the  Pennsylvania  corporation, 
yet  it  transacted  all  the  business  which  the  Credit  Mobilier  ever 
had.  The  Ihiion  Pacific  Railroad  was  being  built,  not  by  the 
Union  Pacific  Company,  but  by  the  Credit  Mobilier,  and  the 
Union  Pacific  officers  simply  got  the  resources  into  available 
shape  and  turned  them  over  to  the  Credit  Mobilier.  The 
United  States  bonds  it  sold  and  transferred  the  cash.  Some- 
times it  turned  over  the  proceeds  of  the  sale  of  first-mortgage 
bonds,  sometimes  the  bonds  themselves. 

This  state  of  affairs  was  in  part  due  to  the  unfortunate  loose- 
ness with  which  the  Pennsylvania  legislature  had  framed  the 
Credit  Mobilier  charter.  The  practice  of  granting  charters 
containing  almost  no  limitations  was  at  that  time  common. 
Unfortunately  it  is  not  yet  unknown. 

Under  the  new  impulse  which  the  Credit  Mobilier  gave  to 
the  enterprise,  the  work  of  construction  was  carried  forward  so 
rapidly  that  during  the  year  1866  the  government  passed  upon 
and  accepted  270  miles  of  track  as  meeting  the  requirements 
of  the  law. 

About  the  time  when  the  road  had  reached  the  one  hundredth 
meridian,  quite  a  number  of  the  stockholders  of  the  Credit 
Mobilier  had  become  large  stockholders  of  the  Union  Pacific, 
among  them  Mr.  Ames,  Mr.  Dillon,  and  Mr.  Duff.  Naturally 
they  desired  to  be  represented  on  the  Union  Pacific  board,  and 
Oliver  Ames  and  two  or  three  others,  at  the  election  of  Octo- 
ber 3, 1866,  went  into  the  directory  of  the  Union  Pacific.^  From 
this  time  on  there  were  two  factions  among  the  Union  Pacific 
people,  one  headed  by  Durant,  the  other  by  Oakes  Ames. 
Durant's  claim  to  leadership  lay  in  the  importance  of  what  he 
had  already  accomplished.    Ames  had  yet  to  win  his  spurs.    It 

1  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  659. 
2/6i(Z.,  p.  598. 


{ 


BUILDING  AND  COST  OF  THE  UNION  PACIFIC  115 

has  repeatedly  been  said  that  the  struggle  between  Duraut  and 
Ames  was  due  to  their  different  views  as  to  the  Union  Pacific 
enterprise  and  their  different  motives  in  taking  it  up.  Durant 
is  said  to  have  believed  that  the  road  would  be  a  commercial 
failure,  and  that  the  only  money  to  be  made  out  of  it  was  to 
be  made  on  construction  contracts ;  while  Ames  believed  in  the 
future  of  the  road  and  looked  to  the  legitimate  business  of  the 
road  after  its  completion  for  his  profit.  The  evidence  as  to  con- 
tracts made  by  these  men  for  construction,  however,  does  not 
exhibit  any  great  rapacity  on  Durant's  part,  nor  any  gireat  ten- 
derness toward  the  road  on  Ames's  part.  It  seems  that  the  fric- 
tion between  these  men  was  rather  of  a  personal  nature.  Durant 
carried  the  enterprise  as  far  as  his  resources  would  allow,  and 
then  had  to  give  way  to  Ames.  Whoever  had  succeeded  him 
as  leader  would  probably  have  aroused  Durant's  jealousy  and 
had  his  opposition  to  contend  with. 

Be  that  as  it  may,  the  decided  friction  between  the  two 
parties  manifested  itself  repeatedly  when  tlie  letting  of  contracts 
was  under  discussion,  and  the  execution  of  several  engagements 
which  had  been  formally  entered  into  was  prevented.  Of  this 
sort  were  five  which  deserve  attention.  Their  history  shows  the 
internal  difficulties  of  the  company,  which  were  at  times  so 
serious  as  to  carry  the  questions  into  court.  It  also  shows  the 
evolution  of  the  terms  of  the  contract  under  which  the  most 
difficult  parts  of  the  road  were  built,  the  Ames  contract. 

The  first  of  these  never-executed  agreements  is  known  as  the 
Boomer  contract.^  Late  in  1866  Durant  made  a  contract  with 
L.  B.  Boomer,  of  Chicago,  which  called  for  the  building  of  150 
miles  of  road,  beginning  at  the  one  hundredth  meridian.  East 
of  the  North  Platte  River  the  price  stipulated  was  1=19,500  per 
mile,  exclusive  of  equipment.  The  bridge  over  that  stream  was 
to  be  paid  for  at  actual  cost.  West  of  the  river  the  price  was 
!J20,000  per  mile.  By  paying  for  work  already  done  and  giv- 
ing ten  days'  notice,  Durant  could  at  any  time  terminate  this 

1  On  the  books  it  is  called  the  Gessner  contract.  Boomer  appointed  Gessner 
his  agent  and  later  sold  the  contract  to  him  (Affairs  of  the  Union  Pacific 
Railroad  Company,  p.  69). 


IK;  kaii.wan    iM:()r.i,KMs 

anaiii^fiiu'iit.'  rivsuUMit  Dix,  Treasurer  Cisco,  and  other  con- 
servativi"  iiieml)ers  of  the  hoard  sustained  Durant  in  his  action 
in  regard  to  this  con  tracts  but  it  was  never  approved  by  the 
board  as  a  whole.'^  Oliver  Ames  afterward  dechired  that  the 
lioomer  contract  was  a  secret  arrangement,  a  bogus  thhig  of 
Dr.  Durant's,  and  that  Hoomer  was  a  man  of  no  responsibility.^ 
At  any  rate,  the  Credit  Mobilier,  although  it  had  received  no  new 
contract,  continued  to  build  the  road  west  of  the  one  hundredth 
meridian  precisely  as  it  had  done  east  of  that  point.  This  was 
di)ne  in  expectation  of  another  contract  on  the  same  terms  as  the 
Hoxie  contract,  and  as  the  stockholders  of  the  Credit  Mobilier 
and  of  the  Union  Pacific  were  the  same  persons  ^  this  expecta- 
tion was  not  likely  to  prove  without  foundation. 

Durant's  move  in  regard  to  the  Boomer  contract  having  been 
successfully  met,  the  next  one  was  made  by  the  other  side. 
There  Avas  presented  to  the  board  of  directors  of  the  Union 
Pacific,  on  the  5th  of  January  18G7,  a  resolution  extending  the 
Hoxie  contract  to  the  point  then  completed,  namely,  305  miles 
west  of  Omaha,  and  authorizing  the  officers  to  settle  with  the 
Credit  Mobilier  for  the  added  58  miles  at  $50,000  per  mile. 
By  a  vote  of  eight  to  four  the  resolution  was  passed.^  Accord- 
ing to  the  Act  of  1864,  the  President  of  the  United  States 
appointed  five  members  of  the  board  of  directors  of  the  Union 
Pacific  who  should  protect  the  interests  of  the  government. 
The  four  votes  against  the  extension  of  the  Hoxie  contract 
were  cast  by  government  directors,  one  voting  in  favor  of  it.' 
Durant,  who  was  absent  on  necessary  business  of  the  company 
when  this  resolution  was  passed,  entered  a  protest  against  its 
being  carried  out,  and  also  served  an  injunction  on  the  officers 
to  prevent  their  making  the  proposed  payments.  His  objections 
were  that,  although  the  Hoxie  contract  was  originally  let  in 
good  faith,  no  one  being  interested  in  it,  the  Credit  Mobilier 
and  the  Union  Pacific  had  since  become  identical  in  interest, 

1  Affairs  of  the  Union  Pacific  llailroad  Company,  Part  II,  p.  7. 

2  Credit  Mobilier  Investigation,  p.  368. 

*  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  67. 

<  Rid.,  p.  285. 

6  Ibid.,  p.  284.  6  Ibid.,  p.  67.  "^  Ibid,  p.  67. 


BUILDING  AND  COST  OF  THE  UNION  PACIFIC  117 

and  that  this  extension  was  simply  letting  a  contract  to  them- 
selves ;  that  no  new  subscriptions  to  the  Union  Pacific  stock 
were  required  because  of  this  extension;  that  this  strip  of  road, 
built  at  much  less  cost  than  the  proposed  price,  had  been  ac- 
cepted by  the  government  as  completed,  and  so  that  carrying 
out  this  contract  would  entail  heavy  loss  upon  the  company,  as 
the  actual  cost  of  this  part  of  the  road,  when  fully  equipped, 
was  about  $27,500  per  mile.  January  24,  nineteen  days  after 
its  passage,  the  order  to  extend  the  contract  was  rescinded,^ 

The  condition  of  the  finances  of  the  two  closely  allied  corpo- 
rations made  it  necessary,  early  in  1867,  earnestly  to  attempt 
measures  of  betterment.  One  form  which  this  effort  took  is 
shown  by  a  letter  of  February  13.  The  Credit  Mobilier  pro- 
posed to  purchase  of  the  Union  Pacific,  land-grant  bonds  to 
the  amount  of  13,000,000,  at  80 ;  first-mortgage  bonds  to  the 
amount  of  $2,060,000,  at  85  ;  certificates  convertible  into  first- 
mortgage  bonds  to  the  amount  of  $750,000,  at  80,  these  certifi- 
cates to  bear  6  per  cent  interest  until  exchanged.  The  Credit 
Mobilier  further  proposed  to  loan  or  procure  to  be  loaned 
to  the  Union  Pacific  $1,250,000  on  four  months'  time,  at  7  per 
cent  annual  interest  and  2^  per  cent  commission,  with  first- 
mortgage  bonds  at  66|  per  cent  as  security.  On  the  other 
hand,  the  Union  Pacific  was  to  pay  to  the  Credit  Mobilier  the 
balances  due  on  previous  debts  at  least  as  soon  as  the  Credit 
Mobilier  had  paid  for  the  securities  named  above.  It  was  also 
provided  that  the  Hoxie  contract  should  be  extended  100  miles 
west  of  the  one  hundredth  meridian  at  $42,000  per  mile.^  This 
arrangement  would  have  given  the  Union  Pacific  $6,001,000  of 
ready  funds.  As  the  contract  price  was  considerably  in  excess 
of  what  this  part  of  the  road  was  actually  costing,  it  would 
have  given  the  Credit  Mobilier  a  profit  in  hand  on  that  part  of 
the  100  miles  of  road  which  had  at  that  time  been  completed, 
and  an  inconsiderable  risk  on  the  remainder  of  what  the  con- 
tract covered.  The  executive  committee  of  the  Union  Pacific 
accepted  this  proposition,^  but  it  was  not  carried  out. 

^  Affairs  of  the  Union  Pacific  Railroad  Company,  pp.  68-70. 

2  Credit  Mobilier  Investigation,  p.  171. 

2  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  172. 


118  KA1I,^\.\^■  iMM>iuj':.Ms 

llowi'vor,  ail  uiulerstanding  was  reached  ahoiit  this  time  that 
whviu'ver  a  (.'oulract  was  entered  into,  it  should  be  so  phiced 
that  the  benefit  woukl  inure  to  tlie  stockholder^  of  the  Credit 
Mobilier.  ( )n  the  strength  o[  this  understanding  the  capital 
stock  of  the  Credit  ^Mobilier  was  increased.  This  was  originally 
intended  to  be  >ii<:2,000,000  ;  September  21,  1805,^  it  was  made 
$2,500,000  nominally,  although  not  all  of  the  new  stock  was 
taken  up  ;-  now,  in  February  1867, it  was  increased  to  $3,750,000. 
The  dilhculty  in  getting  the  old  subscribers  to  take  this  new 
stock  was  met  in  this  way:  for  $1000  in  cash  there  was  prom- 
ised $1000  in  Credit  Mobilier  stock  and  a  $1000  first-mortgage 
bond  of  the  Union  Pacific.  That  this  offer  would  prove  attract- 
ive will  appear  when  it  is  considered  that  the  first-mortgage 
bonds  were  then  worth  85,  thus  leaving  the  Credit  Mobilier 
stock  to  represent  15  per  cent  of  the  price  paid.  On  these 
terms  the  new  stock  was  all  taken  and  the  cash  turned  over  to 
the  Union  Pacific  in  payment  for  bonds.  The  $1,250,000  thus 
put  into  the  Union  Pacific  treasury  was  used  to  cancel  a  part 
of  the  $3,500,000  or  $4,000,000  of  debt  which  it  then  owed.^ 

Having  spent  this  sum,  things  came  to  a  standstill  ag;xin 
almost  as  bad  as  before.  The  Union  Pacific  then  allowed  Bush- 
nell  to  undertake  the  sale  of  a  large  block  of  first-mortgage 
bonds  which  it  had  on  hand  and  on  which  it  was  borrowing 
money  at  extravagant  rates  of  interest,  up  to  14  J  per  cent.* 
By  wide  advertising  and  great  diligence  Bushnell  met  with 
marked  success,  and  in  less  than  six  months  bonds  were  sold  to 
the  amount  of  $10,000,000,  the  price  being  put  up  from  90 
to  95.^    Thus  the  financial  difficulties  were  removed. 

To  carry  out  the  tacit  agreement  made  in  February,  that 
the  Credit  Mobilier  stockholders  should  have  the  profits  on 
constructing  the  road,  attempts  were  made  to  let  contracts 
direct  to  that  corporation,  but  Durant  objected  on  account  of 
the  identity  of  the  two  organizations  and  twice  prevented 
such  action  by  injunctions.*' 

1  Affairs  of  tlie  Union  Pacific  Railroad  Company,  p.  78. 

2  Ibid.,  p.  15.  «  Ibid.,  p.  41.  6  jbid.,  p.  41. 
3I6td.,p.  40.                 '- Ibid.,  p.  42, 


BUILDING  AND   COST  OF  THE  UNION  PACIFIC  119 

One  of  these  attempts  gave  rise  to  what  is  known  as  the 
Williams  contract.  March  1,  1867,  John  M.  S.  Williams  pro- 
posed to  the  company  to  take  the  building  of  267.57  miles  of 
road  westward  from  the  one  hundredth  meridian  as  the  initial 
point,  the  price  for  the  first  100  miles  being  f42,000  per  mile, 
for  the  remainder  $45,000  per  mile.  As  another  feature  of  the 
contract  Williams  was  to  bind  himself  to  procure  subscriptions 
for  Union  Pacific  stock  to  the  amount  of  |)1, 50 0,000.  The 
board  accepted  his  offer  and  gave  instructions  that  a  contract 
be  di'awn  up  on  this  basis.  Williams  assigned  the  contract  to 
the  Credit  Mobilier,  and  the  Credit  Mobilier  accepted  the  assign- 
ment. Then  Durant,  on  March  27,  entered  a  protest  against 
letting  this  contract,  stating  as  grounds  that  j^art  of  the  road 
was  already  built  and  accepted  by  the  government,  that  the  price 
was  too  high,  that  no  time  limit  for  completing  the  work  was 
specified.  His  protest  was  backed  up  by  an  injunction,  so  nothing 
was  done  in  the  matter.  This  protest  shared  the  same  fate  as 
his  previous  one  —  both  were  expunged  from  the  minutes.^ 

June  24,  1867,  Williams  again  made  a  written  proposal  to 
the  Union  Pacific.  It  was  this :  To  build  the  road  from  the 
one  hundredth  meridian  to  the  base  of  the  Rocky  Mountains, 
267.52  miles,  at  -f50,000  per  mile,  the  work  to  be  completed 
before  January  1,  1868.  The  provision  for  a  stock  subscription 
was  omitted  this  time.  Another  proposal  accompanying  this  one 
was  to  assign  the  contract,  if  received,  to  the  Credit  Mobilier.^ 
The  June  proposal,  like  the  one  made  in  March,  came  to  naught. 
This  ends  the  series  of  failures  at  contract'making. 

It  had  been  anticipated  that  great  difficulty  and  heavy  expense 
would  be  met  in  crossing  the  Rocky  Mountains,  but  during  1867 
it  became  generally  known  that  there  was  an  easy  route  by  way 
of  the  Black  Hills,  requiring  no  grade  heavier  than  ninety  feet 
to  the  mile,  and  knowledge  of  this  fact  greatly  strengthened 
confidence  in  the  completion  of  the  road.  This  route  lay  thiough 
what  had  previously  been  called  the  Cheyenne  Pass,  Cheyenne 
and  Sherman  being  located  there.     From  this  time  on  it  was 

1  Affairs  of  the  Union  Pacific  Railroad  Company,  pp.  70-71. 

2  Ibid.,  pp.  102-103. 


120  i;aii-\\a\    I'Kor.Liais 

oallod  the  Evans  Tass,  it,  haviiio-  heen  discovered  by  an  engineer 
named  ICvaiis,  actinijf  under  the  guidance  of  the  chief  engineer 
of  the  road,  (Jeneral  Dodge. 

Meanwhile  construction  was  being  pushed.  'Die  Iloxie  con- 
tract liad  been  completed  to  the  one  hundredth  meridian  Octo- 
ber 5,  181)0,1  .^,^j  beyond  that  point  the  Union  Pacific  made  all 
its  bargains  iov  work  subject  to  any  future  contract  which  might 
be  let.^  By  August  10,  1807,  188  miles  more  had  been  built,'^ 
and  a  letter  of  that  date  from  Oakes  Ames  proposed  the  terms 
on  which  he  would  become  responsible  for  building  the  007 
miles  of  road  beginning  at  the  one  hundredth  meridian."*  The 
board  passed  a  resolution  the  same  day  directing  the  officers  to 
obtain  the  written  consent  of  the  stockholders,  a  provision  upon 
which  Durant  insisted,^  and  then  to  ratify  the  contract,  giving 
Ames  the  option  of  extending  it  westward  to  Salt  Lake  if 
he  chose.*^  The  prices  specified  were:  100  miles  at  -142,000 
per  mile,  107  at  •*45,000,  100  at  *90,000,  100  at  .|<80,000,  100 
at  'f!90,000,  100  at  $90,000."  Thus  Ames  assumed  a  contract 
aggregating  $47,915,000. 

These  prices,  although  high  for  the  eastern  sections  of  the 
part  which  they  covered,  were,  on  the  whole,  perhaps  not  exor- 
bitant. The  rates  for  the  western  sections  would  undoubtedly 
have  been  made  considerably  higher  if  the  eastern  part  with  its 
assured  profit  had  not  been  included.  Moreover,  this  contract 
insured  the  building  of  the  difficult  portions  by  providing  that 
when  the  proceeds  of  the  bonds  were  not  sufficient  to  pay  the 
contract  prices,  the  contractor  should  subscribe  for  enough 
stock  to  furnish  the  money  for  paying  the  balance.  In  other 
words,  Ames  was  bound  to  take  in  stock,  at  par,  that  part  of 
liis  pay  which  was  not  produced  by  selling  the  two  kinds  of 
bonds.  In  no  other  way  could  security  have  been  obtained  for 
the  building  of  the  difficult  and  risky  portions  of  the  road.  In 
fact,  it  was  impossible  to  let  contracts  to  outsiders  for  even  the 

1  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  65.        ^  iMd.,  p.  115. 
^  Ibid.,  p.  113.  4  Credit  Mobilier  Investigation,  p.  365. 

^  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  542. 
6  Ibid.,  Part  II,  p.  12.  ^  jf^td^^  p   iq. 


BUILDING  AND   COST  OF  THE  UNION  PACIFIC  121 

easy  portions  of  the  road.  John  Duff,  who  had  done  a  great 
deal  of  work  of  this  sort,  made  repeated  efforts  to  let  contracts 
among  experienced  and  competent  contractors,  appealing  to  his 
own  subcontractors  in  his  attempts  to  find  some  one  who  would 
do  the  work,  but  he  was  unable  to  get  any  one  to  go  out  there. ^ 
Horace  Clarke  said,  in  1873,  that  he  thought  the  Ames  contract 
the  wildest  contract  he  ever  knew  to  be  made  by  a  civilized  man.^ 
Be  that  as  it  may,  the  work  was  pushed  to  completion  under  it. 
Although  this  contract  did  not  intimate  in  its  terms  that  any 
one  besides  Oakes  Ames  and  the  Union  Pacific  Railroad  Com- 
pany was  in  any  way  concerned  in  the  matter,  there  undoubtedly 
existed  a  more  or  less  definite  understanding  that  the  persons 
to  profit  thereby  were  the  stockholders  of  the  Credit  Mobilier.-^ 
The  arrangement  by  which  the  profits  were  distributed  to  them 
is  described  in  the  tripartite  agreement,  which  was  signed  Octo- 
ber 15,  1867.*  General  Benjamin  F.  Butler  suggested  this  form 
of  contract  as  obviating  the  difficulty  which  would  arise  if  any 
single  stockholders  of  the  Credit  Mobilier  should  object  to  the 
transfer  of  responsibility  to  that  organization.^  The  party  of 
the  first  part  was  Oakes  Ames,  who  then  held  the  contract, 
and  who  assigned  it  to  the  party  of  the  second  part.  Seven 
trustees  constituted  the  party  of  the  second  part,  and  they 
bound  themselves  to  carry  out  the  contract  according  to  its 
terms,  and  to  distribute  the  profits  thereupon  among  those  stock- 
holders of  the  Credit  Mobilier  who  should  execute  to  them  an 
irrevocable  proxy  on  at  least  six  tenths  of  any  Union  Pacific 
stock  which  they  then  owned,  or  which  they  in  future  might 
own.  This  power  to  vote  a  majority  of  the  Union  Pacific  stock 
insured  the  trustees  against  the  election  of  a  Union  Pacific 
board  hostile  to  the  interests  of  the  Credit  Mobilier.  The  men 
named  as  trustees  were  Oliver  Ames,  T.  C.  Durant,  J.  B.  Alley, 
Sidney  Dillon,  C.  S.  Bushnell,  H.  S.  McComb,  and  Benjamin 
E.  Bates.  The  party  of  the  third  part  was  the  Credit  Mobilier, 
which  guaranteed  the  carrying  out  of  the  contract  and  bound 

1  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  493. 

2  Ibid.,  p.  405.  4  ijjia.^  Tart  II,  pp.  13-16. 
8  76id.,  p.  5.  ^  Ibid.,  p.  68i. 


\'22  \l.\\\.\\\\    I'KOl'.LKMS 

itself  to  loan  tlic  tiusicis  what  funds  they  needed,  receiving 
therefor  7  i)er  cent  interest  and  2.',  per  cent  commission. 

Noteworthy  ehani,^es  in  the  standinj;"  of  the  Union  Pacific  en- 
terprise had  taken  place  since  18()4.  Then  the  Credit  Mobilier 
had  to  be  seeured  in  order  to  limit  liability  and  get  enough 
capital  to  continue  construction.  In  18(.')8  there  was  no  diffi- 
culty in  getting  capital  to  take  hold  of  the  Ames  contract.  The 
proxies  whieh  were  required,  and  which  were  readily  given  to 
the  trustees,  were  so  worded  that  they  made  each  stockholder  of 
the  Credit  Mobilier  a  partner  in  the  enterprise  —  just  what 
the  Credit  Mobilier  had  been  made  use  of  to  avoid  —  and  the 
trustees  went  to  work  with  <if50, 000,000  back  of  them.  Until 
the  connection  of  the  Credit  Mobilier  with  the  Ames  contract 
was  known,  the  stock  of  that  corporation -had  never  had  a 
market  value.  Then  it  immediately  went  far  above  par,  and 
what  few  sales  were  made  were  at  fancy  figures  like  260. 

As  has  already  been  said,  the  Credit  Mobilier  continued  to 
build  the  road  beyond  the  one  hundredth  meridian,  where  its 
contract  ceased,  knowing  that  proper  credit  for  its  work  would 
be  given  when  the  final  contract  was  let.  We  have  seen  that 
when  Ames's  proposal  was  made,  188  miles  had  already  been 
built.  By  the  time  he  assigned  the  contract  to  the  trustees,  50 
miles  more  had  been  finished. ^  This  first  part  of  the  work  em- 
braced under  the  Ames  contract  was  not  expensive,  and  what 
Avas  to  be  paid  for  it  was  some  •'$'2,500,000  or  $3,000,000  in 
excess  of  its  cost  to  the  builder.^  So  tlie  trustees,  with  this 
sum  in  hand,  made  haste  to  carry  out  their  obligations. 

As  Ames  did  not  wish  to  extend  his  contract  beyond  the  667 
miles  which  it  originally  covered;^  Durant,  to  avoid  delay,  made 
a  contract  in  November  1868,  wdth  James  W.  Davis,  a  subcon- 
tractor, to  build  the  remainder  of  the  road.  The  Davis  contract 
took  the  Ames  contract  as  its  basis,  and  an  accompanying  agree- 
ment provided  for  its  assignment  to  the  same  trustees  who  exe- 
cuted the  Ames  contract.  A  resolution  of  the  board  of  directors 
of  the  Union  Pacific  approved  Durant's  action,  and  a  committee 

1  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  114. 
"^  Ibid.  3j^/(2.^p.  4. 


BUILDING  AND  COST   OF  THE   UNION  PACIFIC  123 

was  appointed  to  obtain  the  necessary  consent  of  the  Union 
Pacific  stockholders.^  Thus  without  any  change  of  machinery 
the  work  went  on. 

Construction  on  the  western  part  of  the  road  was  pushed 
with  unprecedented  vigor,  winter  not  being  allowed  to  stop 
work.  There  were  several  reasons  for  this  haste.  Public  opin- 
ion, which  the  government  directors  voiced,  urged  it.^  To  put 
capital  into  the  road  and  postpone  its  productiveness  by  not 
opening  it  to  traffic  until  1875,  the  limit  set  by  the  Act  of 
1864,  would  have  crushed  the  company  under  the  accumula- 
tion of  interest.  The  Salt  Lake  business  and  a  "governing 
point "  for  the  traffic  of  that  region  was  a  prize  to  be  gained 
only  by  rapid  work.^  Late  in  the  construction  period  the  desire 
to  meet  the  Central  Pacific  as  far  west  as  possible  became  a 
motive.  So  the  work  was  done  with  marvelous  speed.  Four 
or  five  miles  of  track  were  laid  per  day,  and  items  of  ex- 
pense which  should  have  been  15600  per  mile  were  made  $1500 
instead.*  By  such  methods  the  Union  Pacific  and  the  Central 
Pacific  were  joined  May  10,  1869.^ 

1  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  17. 

2  Ibid.,  p.  664.  3  /5((i.^  p.  503.  *  Ibid.,  p.  510. 

5  The  facts  of  the  construction  period  thus  far  related  may  be  brought  together 
by  the  aid  of  the  accompanying  diagram  : 


Ogden 

l(>i2                935 

515 

400  3 

iTA'^,    305     247^, 

Oraaha 
100       35 

V                                                 ^ 

^1 

1           ^ 

o 

u 

(0 

-1 

's 

00 

o 

1.  Built  by  Union  Pacific  Company,  largely  with  Durant's  money. 

2.  Hoxie  Contract. 

3.  Hoxie  Contract  Extension. 

4.  Assigned  to  Credit  Mobilier. 

5.  Built  by  Credit  Mobilier. 

0.  First  proposed  extension  to  Hoxie  Contract. 

7.  Proposed  Hoxie  Contract  extension,  coupled  with  purchase  of  $6,000,000  of 
securities. 

8.  Boomer  Contract. 

9.  I.  Williams  Contract  of  March  1,  1867. 
II.  William.s  Contract  of  June  24,  1867. 

10.  Ames  Contract. 

11.  Davis  Contract. 


124  UAl^\\A^    nior.LKMs 

Tliis  saving  of  six  yt'ars  of  the  time  allowed  l)y  the  law  for 
CtimpU'tiiii^  the  vom\  douhlecl  the  cost  to  the  builders.  Wy  iii- 
oieasiutT  the  woikiiiL;-  fmce  the  chance  of  accidental  delays  was 
increased,  and  the  costliness  of  such  delays  likewise  increased. 
Just  before  the  Ames  conti'act  was  let,  the  Union  Pacific  was 
obliged  to  borrow  money  in  New  York  to  use  on  the  road,  for 
which  it  paid  IS  or  19  ])er  cent.^  By  jjushing  the  road  out 
beyond  the  bounds  of  civilization  and  not  waiting  for  the  slower 
pace  of  the  settler,  it  often  became  necessary  for  one  half  the 
force  to  stand  guard  while  the  other  half  worked.^  Hundreds 
of  w'orkmen  were  killed  by  the  Indians."^ 

Thus  far  the  managers  of  the  enterprise  were  responsible  for  the 
increased  cost ;  they  could  have  avoided  it  by  adopting  a  different 
policy.  But  there  were  other  items  of  needless  cost  which  they 
could  not  avoid.    For  these  the  government  alone  was  to  blame. 

The  requirement  that  only  American  iron  be  used  on  the 
road  increased  the  cost  -ji^lO  for  every  ton  of  rails  laid.*  An 
incident,  typical  rather  than  intrinsically  important,  is  that  of 
two  government  directors  who  insisted  that  a  cut  should  be 
made  through  each  rise  in  the  Laramie  plains,  giving  the  track 
a  dead  level,  instead  of  conforming  it  to  the  profile  of  the 
ground.  As  snow  blockades  made  it  necessary  to  refill  these 
cuts  later,  there  was  a  waste  of  from  $5,000,000  to  i!lO,000,000. 
At  the  crossing  of  the  North  Platte,  machine  shops  were  called 
for  w^iich  cost  perhaps  -1300,000.  To  the  cornpany  they  were 
not  worth  three  cents.^  Another  of  a  worse  sort  concerned  a 
government  commissioner,  Cornelius  Wendell,  appointed  to  ex- 
amine the  road  and  report  whether  or  not  it  met  the  require- 
ments of  the  law,  who  flatly  demanded  -125,000  before  he  would 
proceed  to  perform  his  duty.  As  a  considerable  section  of  road 
awaited  acceptance,  and  as  acceptance  must  precede  the  draw- 
ing of  subsidies,  his  demand  was  paid  in  the  same  spirit  in  which 
it  was  made  —  as  just  so  much  blood  money .^    Such  results  were 

1  Affairs  of  the  Union  Tacific  Railroad  Company,  p.  252. 

2  Ibid.,  p.  431.  3  Ibid.,  p.  494. 

*  Credit  Mobilier  Investigation,  p.  25.5. 

*  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  4.32.      <>  Ibid.,  p.  471. 


( 


BUILDING  AND   COST   OF  THE  UNION   PACIFIC  125 

bound  to  follow  when  the  government  made  its  power  to  appoint 
commissioners  a  means  of  distributing  political  patronage.^ 

As  steps  toward  answering  the  question,  What  did  the  build- 
ing of  the  Union  Pacific  yield  as  profit?  the  capitalization  and 
the  cost  must  be  considered. 

The  property,  at  the  close  of  the  period  of  construction,  stood 
burdened  with  four  kinds  of  bonds  —  United  States  bonds,  its 
own  first-mortgage  bonds,  land-grant  bonds,  and  income  bonds. 
Of  the  government  bonds  there  were  issued  the  full  quota  — 
$27,266,512  on  1038.68  miles  of  road.2  The  aggregate  of  first- 
mortgage  bonds  was  slightly  less  than  this  sum,  #27,213,000.^ 
Of  land-grant  bonds  there  were  outstanding  -110,400,000,  and 
of  income  bonds,  f 9, 355, 000.  Thus  the  total  indebtedness 
represented  by  the  four  kinds  of  bonds  was  -1)74,204,512. 

The  stock  of  the  road  subscribed  for  when  organization  was 
effected  was  slightly  in  excess  of  the  -$2,000,000  required,*  and 
was  owned  in  various  quarters.  As  early  as  December  1,  1864, 
the  Credit  Mobilier  began  to  buy  in  these  shares,  and  succeeded 
in  acquiring  almost  all  of  them.^  By  the  time  the  Ames  con- 
tract was  let,  the  #2,000,000  had  increased  to  about  -$5,000,000.6 
Under  the  Ames  and  Davis  contracts  the  trustees  subscribed, 
at  various  times  as  the  work  proceeded,  according  to  the  terms 
of  those  contracts,  for  $30,096,000  of  stock,'^  and  when  the  road 
was  done  the  stock  issued  was  $36,762,300.  Thus  the  total 
capitalization  of  the  road  was  -1110,966,812. 

But  this  sum  does  not  represent  the  cost  of  the  road.  From  the 
books  of  the  Union  Pacific  and  the  Credit  Mobilier,  it  appears 
that  the  expenditures  by  the  Union  Pacific  directly  amounted 
to  '$9,746,683.33  ;  and  that  the  actual  expenditures  under  the 
Hoxie,  Ames,  and  Davis  contracts  were  $50,720,957.94,  mak- 
ing the  total  cost  of  the  road  $60,467,641.27. ^ 

1  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  431. 

2  Ibid.,  p.  738.  4  Ibid.,  p.  509.  6  jj^i^i^  p.  72. 

3  Ibid.,  p.  .590.  5  jfjid^  p.  20.  t  md,^  p.  642. 

^  The  fif^ures  upon  whicli  this  estimate  is  based  were  compiled  by  Mr.  Ben- 
jamin F.  Ham,  who  was  assistant  secretary  and  treasurer  of  the  Credit  Mobilier 
during  most  of  the  period  of  its  active  existence  (Affairs  of  the  Union  Pacific 
Railroad  Company,  p.  371). 


120  K.MLW.w    1'i;oi;i.i<:ms 

This  should  bo  ('i)iui);utHl  with  the  sum  ret'oivod  for  Londs, 
whirh  is  shown  by  the  following  table  :  ^ 

Kirst-mortgagt'  hoiuls        i§27,2l;5,UOO.OO 

Loss  on  same 3,494,991.23 

■ •     123,718,008.77 

Land-grant  boiuls 1(1,100,000.00 

Loss  on  same 4,330,007.90 

6,063,992.04 

tJovernnu'nt  bonds 27,230,512.00 

Loss  on  sanie 91,348.72 

— 27, 14r),l  03.28 

Income  bonds 9,355,000.00 

Loss  on  same 2,818,400.00 

6,536,600.00 

Total .    !ii!03,403,7e4.09 

Cost  of  road       !S!00,407,041.27 

Excess  of  receipts  from  bonds  over  cost  of  road        $2,993,122.82 

There  must  be  added  to  this  sum,  in  order  to  get  the  cash 
profit  on  building  the  road,  the  amount  which  was  paid  to  the 
Union  Pacific  by  the  Central  Pacific  for  the  section  of  road 
lying  between  Promontory,  wliicli  liad  been  settled  upon  as  the 
meeting  place  of  the  two  roads,  and  the  point  which  is  now  the 
end  of  the  Union  Pacific,  some  four  or  five  miles  west  of  Ogden.^ 
For  this  transfer  of  the  ownership  of  some  fifty  miles  of  road 
the  Union  Pacific  received  the  sum  of  !^2,698,620.  This  makes 
the  cash  profit  on  the  enterprise  -1155,691,742.82. 

Then,  in  order  to  ascertain  the  total  profit  on  construction, 
there  must  be  added  the  value  of  the  wdiole  amount  of  stock 
issued.  But  what  that  value  is  cannot  be  said.  The  leading- 
men  of  the  enterprise  seemed  unanimous  in  the  opinion  that  a 
fair  valuation  w^as  30.    But  Union  Pacific  stock  has  certainly 

1  Affairs  of  the  Union  Pacific  Railroad  Company,  p.  590. 

2  Those  provisions  of  the  chartering  acts  which  were  intended  to  spur  the 
eastern  and  the  western  companies  to  rapid  building,  in  competition  for  the  sub- 
sidies offered,  worked  only  too  well.  Instead  of  bringing  the  ends  of  the  road 
together  as  soon  as  possible,  the  two  construction  parties  passed  within  sight 
of  each  other,  and  graded  two  parallel  lines.  The  Central  Pacific  went  almo.st 
to  Ogden  and  the  Union  Pacific  to  Humboldt  —  points  170  miles  apart  —  before 
a  compromise  was  effected.  The  terms  of  the  compromise  are  indicated  in  the 
text  (Affairs  of  the  Union  Pacific  Railroad  Company,  p.  11). 


BUILDIXG  AND  COST   OF  THE   UNION  PACIFIC  127 

been  above  that  point  repeatedly,  and  it  was  down  at  one  time 
to  9.  It  has  always  been  a  speculative  stock,  the  sales  amount- 
ing in  a  year  to  several  times  the  total  amount  outstanding. 
But,  for  the  sake  of  getting  an  estimate  of  the  profits  made  by 
the  builders  of  the  Union  Pacific,  even  though  that  estimate  be 
admittedly  unreliable,  the  valuation  given  above  may  be  taken. 
At  30,  the  -136,762,300  of  stock  would  be  worth  $11,028,690. 
Adding  this  to  the  cash  profit  as  stated  above,  the  total  profit 
appears  to  be  $16,710,432.82,  or  slightly  above  27|  per  cent  of 
the  cost  of  the  road.  Considering  the  character  of  the  under- 
taking and  the  time  when  it  was  carried  through,  this  does  not 
seem  an  immoderate  profit. 


TlIK    SOUTHERN    RAILWAY   .t    STEAMSHIP 
ASSOCIATION  1 

A  Typical  Pool 

ABOUT  the  year  1860,  after  the  railroads  from  the  East 
had  been  pushed  througli  to  Chicago,  and  the  short  inde- 
pendent roads  began  to  bo  united  in  interest  and  in  manage- 
ment, the  sharp  competition  tjiat  has  become  such  a  marked 
feature  in  modern  railroad  operations  first  came  into  prominent 
notice.  Up  to  that  time,  each  road  had  used  only  its  own  cars, 
the  freight  and  passengers  being  transferred  at  the  terminus. 
As  it  became  necessary  for  connecting  roads  to  work  together, 
and  make  through  lines  lequiring  no  transfers,  each  road  began 
to  work  for  the  whole  line  of  which  it  formed  a  part  as  against 
other  similar  lines  or  combinations. 

The  development  in  the  South  was  much  slower;  and  com- 
bination and  competition,  though  inevitable,  came  more  tardily. 
It  was  not  till  the  Southern  country  had  been  laid  waste  by  the 
contending  armies,  and  its  business  brought  to  a  standstill,  that 
really  sharp  competition  became  the  rule.  Then  the  country 
was  found  to  be  supplied  with  more  roads  than  were  needed. 
According  to  Mr.  Powers,  afterwards  Commissioner  of  the 
Southern  Railway  &  Steamship  Association,  "there  was  not 
as  much  business  as  all  could  do.  Indeed,  any  one  of  these 
lines,  with  a  comparatively  small  output  for  rolling  stock,  can 
do  all  the  business  to  any,  indeed  to  all,  competitive  points 
named  in  our  circulars."  ^    With  such  a  condition  of  affairs,  it 

1  From  the  Quarterly  Journal  of  Economics,  Vol.  V,  1801,  pp.  70-94.  Circular 
Letters  of  the  Southern  liaihvay  Steamship  A.ssociatlon  are  simply  referred  to 
hereafter  as  Circular  Letters.  The  number  preceding  the  title  indicates  the 
volume.  Pooling  and  combination  in  general  are  discus.sed  in  Ripley's  Railroads : 
Finance  and  Organization.  2  3  Circular  Letters,  09L 

128 


SOUTHERN   RAILWAY  ASSOCIATION  129 

was  inevitable  that  each  road  should  try  to  get  all  the  business 
possible.  This  was  done  by  means  of  rebates  or  open  cutting 
of  rates,  which  soon  brought  them  to  a  ruinously  low  range. 
At  this  stage  of  events,  agreements  to  restore  and  maintain 
rates  were  not  infrequently  made ;  but,  as  Mr.  Fink  subse- 
quently remarked  in  one  of  his  reports  to  the  Association, 
these  agreements  were  generally  made  by  the  managers  "  with 
the  purpose  merely  of  practising  deception  upon  each  other. 
Starting  from  a  higher  scale  of  rates,  they  secured,  for  a  short 
period  at  least,  some  remuneration  for  the  work  performed, 
until  the  low  rates  were  reached  again."  ^  Mr.  Fink  estimated 
that  by  means  of  these  rate  wars  the  gross  earnings  of  the  South- 
ern railroads  were  reduced  about  forty-two  per  cent  below  what 
regular  rates  would  have  yielded.^  This  forty-two  per  cent  was 
in  many  cases  equal  to  the  whole  net  earnings  which  could  have 
been  derived  from  the  competitive  business  at  the  regular  rates, 
showing  that  the  business  was  really  unprofitable.  The  roads 
in  the  South  were,  in  consequence,  practically  worthless  to  their 
owners.  The  following  language  was  used  in  1876  by  a  com- 
mittee of  the  stockholders  of  the  Central  Railroad  &  Banking 
Company  of  Georgia :  "•  It  is  conceded  that  the  property  of  your 
stockholders  is  on  the  brink  of  being  sunk  forever ;  and  the 
bankruptcy  of  a  number  of  your  roads  is  imminent,  if  not  even 
now  a  fact."  ^  This  was  the  condition  of  affairs  which  led  to  the 
formation  of  the  Southern  Railway  &  Steamship  Association. 

Several  isolated  attempts  were  made  to  bring  about  a  division 
of  business  before  the  final  comprehensive  scheme  was  adopted. 
Thus,  in  1873,  the  roads  running  out  of  Atlanta,  the  Central, 
the  Georgia,  the  Western  &  Atlantic,  and  the  Atlanta  &  Char- 
lotte Air  Line,  agreed  upon  divisions  of  the  cotton  business.* 
The  accounts  were  kept  by  the  superintendent  of  the  Western 
&  Atlantic,  and  were  settled  after  some  delay  and  dispute. 
This  agreement  covered  only  the  cotton  season  of  1873. 

On  December  21,  1874,  a  meeting  of  the  Southern  roads  was 
held  at  Macon,  Georgia,  to  devise  some  permanent  means  of 


1  1  Circular  Letters,  277.  ^  }  Ibid.,  218.    '  ^2  Ibid., 

*  22  Ibid.,  1(!1!)  (Report,  of  tlic  (icneral  Commissioner). 


OQC 


130  KAiLw.w    ruor.Li'iMS 

settling'  the  dilViculties  that  were  eonstantly  aiising  between 
iheiu.  AilJDUined  meetings  were  held  in  -lunnary,  1875,  when 
an  agreement  was  drawn  u[)  and  a  provisional  division  of  busi- 
ness agreed  upon  for  the  principal  competitive  points.  Several 
meetings  for  perfecting  the  agreement  were  held  during  1875; 
and  on  October  13  of  that  year  Mr.  Albert  Fink  was  elected 
General  Connnissioner.^  This  was  in  itself  a  favorable  omen 
for  the  experiment;  for  Mr.  Fink  had  been  General  Superin- 
tendent of  the  Louisville  &  Nashville  Road,  and  was  familiar 
with  the  railroad  business  of  the  South.  Furthermore,  it  was 
largely  on  a  plan  laid  down  by  him  in  a  letter  to  the  president 
of  the  convention  that  the  Association  was  formed.  He  accepted 
office  only  for  the  purpose  of  organizing  the  pool  and  setting  it 
in  motion,  and  served  but  six  months.  Notwithstanding  his 
short  term  of  office,  it  is  to  Mr.  Fink  that  the  Association  owes 
much  of  its  success.  The  Southern  Association  was  his  first 
experiment  in  arranging  railroad  pools  and  agreements,  and 
was,  in  fact,  with  one  exception,  the  first  practical  pooling 
arrangement  in  this  country.^ 

The  Association,  as  its  name  implies,  was  intended  to  include 
all  of  the  Southern  transportation  companies.  Any  road  south 
of  the  Ohio  and  Potomac  Rivers  and  east  of  the  Mississippi 
could  become  a  member.  Any  steamship  company  connecting 
these  roads  with  Boston,  Providence,  New  York,  Philadelphia, 
or  Baltimore  was  eligible.  Its  main  object  was  to  remedy  the 
evil  of  excessive  competition,  which  was  working  the  destruc- 
tion of  all  Southern  roads,  by  maintaining  rates  and  securing 
a  fair  distribution  of  business.  To  accomplish  these  ends,  an 
annual  convention  was  held,  to  which  each  road  sent  a  repre- 
sentative. This  convention  elected  the  President,  a  permanent 
General  Commissioner,  a  Secretary  and  Auditor,  a  Board  of 
Arbitration,  and  an  Executive  Committee.  It  voted  on  the 
admission  of  new  members,  and  adjusted  all  matters  that  could 
not  be  determined  by  the  General  Commissioner,  a  two- thirds 
vote  being  necessary  for  any  action. 

1  1  Circular  Letters,  18. 

2  The  exception  was  the  so-called  "Omaha  Pool,"  first  formed  in  1870 
between  the  Burlin^on,  Konk  Island,  and  North- Western  Roads. 


SUUTHEKN   KAIL  WAY  ASSOCIATION'  131 

The  Commissioner  had  general  charge  of  the  business  of  the 
Association,  but  referred  to  the  convention,  or  to  the  managers 
of  the  roads  interested,  whatever  delicate  matters  he  did  not 
feel  able  himself  to  deal  with.  His  decisions,  orders,  recom- 
mendations, statistics,  together  with  the  minutes  of  the  con- 
ventions and  committee  meetings,  were  communicated  to  the 
various  roads  by  means  of  circular  letters.  These  have  been 
collected,  and  the  twenty-four  volumes  in  which  they  are  pre- 
served form  the  chief  source  of  information  regarding  the 
history  of  the  Association. 

The  practice  of  referring  details  to  the  convention,  adopted 
in  the  first  agreement,  proved  cumbersome  and  impracticable. 
Accordingly,  there  were  occasional  informal  meetings  of  the 
various  managers;  and  in  1883^  an  Executive  Committee  was 
appointed,  consisting  of  the  manager  or  executive  officer  of 
each  of  the  principal  lines  in  the  Association.  This  Executive 
Committee  was  given  jurisdiction  over  all  matters  relating  to 
the  joint  traffic,  but  could  act  only  by  unanimous  consent.  It 
could  delegate  to  subcommittees  jurisdiction  over  matters  espe- 
cially committed  to  their  charge.  Such  a  subcommittee  was  the 
Rate  Committee ;  though  a  Rate  Committee,  with  powers  derived 
from  a  different  source  (the  convention),  had  existed  for  several 
years  before  this.  Having  charge,  in  the  first  instance  at  least, 
of  rates  and  classifications,  this  subcommittee  became  one  of 
the  most  important  branches  of  the  organization.  It  consisted 
of  the  general  freight  agents  of  each  of  the  lines  in  the  Associa- 
tion. The  Rate  Committee,  like  the  Executive  Committee,  could 
act  only  by  a  unanimous  vote ;  and  any  member  could  demand 
that  a  question  be  referred  to  the  Executive  Committee.^  This 
condition  of  a  unanimous  vote  was  probably  meant  to  prevent 
any  combination  or  clique  of  lines  from  bettering  themselves  at 
the  expense  of  the  others.  But  the  result,  as  might  be  expected, 
was  that  it  was  often  impossible  to  reach  a  decision,  even  on 
comparatively  unimportant  matters.  The  question  would  then 
go  to  tlie  Executive  Committee,  where  a  similar  state  of  affairs 
was  likely  to  be  met,  and  finally  to  the  Board  of  Arbitration. 

1  22  Circular  Letters,  352. 

2  Sec  the  Af^reoiuout,  Articles  7  and  10. 


\:]'2  i;.\ii,\\.\\    I'Koi'.i.K.MS 

This  invdhi'tl  miicli  liiiu'  and  expi'iise,  even  in  oases  where  a 
inaJDritv  vole  in  cilher  toinmiltce  should  have  been  amply  suiHi- 
I'ioiit.  lint  it  may  be  said,  on  the  other  side,  that  by  this  refer- 
enee  of  the  mailer  to  arbitralion  the  dissenting  roads  were  sure 
of  an  enlirely  im[)arlial  decision,  and  would  be  much  more  likely 
to  abide  by  it  ihan  when  outvoted  in  the  committees. 

By  the  first  agreement  (1875),'  provision  was  made  for  refer- 
ence of  any  disputes  that  might  arise  to  the  Commissioner  as 
arbitrator.  Then,  if  any  member  disapproved  of  his  decision, 
the  matter  was  referred  to  outsiders  selected  by  the  contestants 
in  the  case.  In  one  case,  Mr.  Charles  Francis  Adams  was  so 
chosen  as  referee."'^  But  this  scheme  of  bringing  in  strangers, 
busy  with  affairs  of  their  own,  was  not  always  practicable. 
Accordingl}',  some  years  later,  an  Arbitrator  Avas  elected  as  a 
permanent  officer  of  the  Association.  His  duty  was  to  receive 
written  arguments,  and,  in  connection  with  the  Commissioner, 
to  decide  all  cases  that  might  be  referred  to  him.  At  the  ninth 
annual  convention,^  October  2-1,  1883,  the  number  of  the  Arbi- 
trators was  increased  to  three,  the  present  number. 

As  soon  as  possible  after  the  completion  of  the  organization 
and  the  election  of  the  Commissioner,  a  permanent  division  of 
business  was  agreed  upon  for  Atlanta,  Augusta,  and  Macon. 
This  was  put  into  effect  on  November  19,  1875.  Each  road 
was  expected  to  carry,  as  nearly  as  possible,  the  appointed 
amount.  In  case  the  exact  proportions  could  not  be  secured, 
one  half  a  cent  per  ton  per  mile  was  allowed  each  road  for  any 
excess  carried  by  it,  to  cover  the  expense  of  carriage ;  and  the 
remainder  of  the  revenue  was  paid  to  the  Commissioner  to  be 
transferred  to  the  credit  of  those  roads  carrying  less  than  their 
proportions.'^  Daily  returns  of  the  competitive  business  were 
made  to  the  Commissioner,  whose  duty  it  was  to  publish  monthly 
tables  of  the  amount  of  freight  carried  by  each  road. 

This  would  have  done  very  well  if  all  the  roads  had  honestly 
performed  their  part.    But  such  was  not  the  case.    Down  to 

1  1  Circular  Letters,  7.  2  14  7b/d,  .35.  ^UIhid.,45. 

*  This  was  changed  later.  Twenty  per  cent  of  the  revenue  was  allowed  in  the 
last  years  of  the  pooling  arrangement. 


SOUTHERN   RAILWAY  ASSOCIATION  133 

July  31,  1876,  when  Mr.  Virgil  Powers  took  the  place  of  Mr. 
Fink,  only  62|  per  cent  of  the  merchandise  balances  had  been 
settled.^  The  remaining  37|^  per  cent,  and  all  the  balances  on 
cotton,  still  remained  unpaid.  A  compromise  was  arranged  for 
the  remainder,  and  the  amount  agreed  upon  was  at  last  nearly 
all  paid.  But,  as  the  same  trouble  was  likely  to  recur,  the  Com- 
missioner proposed  that  each  road  should  deposit  to  his  order  a 
certain  percentage  of  the  revenue  on  each  waybill  of  pooled 
business.  In  June,  1877,  a  convention  of  the  roads  agreed  to 
a  deposit  of  twenty  per  cent.^  In  1887,  in  his  annual  report,^ 
the  Commissioner  was  able  to  say  that  "since  1877  all  balances 
have  been  paid  and  rates  thoroughly  maintained,  except  for 
about  a  month  from  February  14  to  March  15,  1878,  during 
which  time  there  was  a  war  of  rates  between  the  roads." 

At  the  outset  the  pool  covered  only  the  business  with  the 
Eastern  cities.  The  Western  business  was  not  pooled  till  the 
year  before  the  Interstate  Commerce  Act  was  passed.  On  this 
unpooled  business,  rates  were  being  constantly  cut,  and  there 
was  much  complaint  both  by  the  roads  and  by  the  public.  To 
remedy  this  evil,  another  organization  of  Southern  roads  was 
formed  in  1886,  known  as  the  "  Associated  Roads  of  Kentucky, 
Alabama,  and  Tennessee,"  *  and  the  pooling  arrangement,  which 
had  operated  so  successfully  with  the  Eastern  business,  was 
extended  to  the  business  to  and  from  the  West.  In  1887,  the 
new  organization  was  united  with  the  Southern  Railway  & 
Steamship  Association ;  and  the  Commissioner  of  the  former 
Association,  Mr.  J.  R,  Ogden,  was  elected  Vice-Commissioner 
of  the  latter  and  given  charge  of  the  Western  business.^ 

One  further  point  in  the  history  of  the  organization  needs 
to  be  spoken  of  before  we  turn  to  its  practical  workings.  The 
agreement  contemplated  putting  both  passenger  and  freight 
business  under  the  rules  of  the  Association.  At  first,  however, 
freight  trafific  alone  was  regulated.    In  1885  the  Commissioner 

1  21  Circular  Letters,  1G79.  3  21  Ibid.,  1620. 

2  .3  Ibid.,  801.  4  21  Ibid.,  1620. 

6  22  Ibid.,  1.38,  1621.  At  the  end  of  the  year,  however,  this  office  of  Vice- 
Commissioner  was  abolished. 


was  asked  ti>  submit  a  plan  for  hiiiigiiiy^  tlic  passenirer  business 
uutliM-  tlu'  I'Diitrol  ol'  the  Association,  and  in  November  a  plan 
was  submit  ted  to  the  lv\eculive  Committee.^  It  was  never 
acted  on  by  the  Asst)ciation  as  such  ;  but  it  was  taken  in  liand 
by  the  roads,  and  another  Association  was  formed,  called  the 
Southern  Passenger  Association.  It  is  distinct  more  in  name 
than  in  practice.  The  two  Associations  are  composed  of  the 
same  roads,  and  the  same  person  is  their  General  Conuuissioner. 
The  Southern  Passenger  Association  is  now  practically  a  part 
of  the  Soufhern  Railway  &  Steamship  Association. 

So  much  for  the  history  and  general  organization  of  the 
Association.  The  Commissioner,  the  Executive  and  Kate  Com- 
mittees, and  the  Arbitrators  are  the  effective  parts  of  the  machin- 
ery ;  and  to  their  functions  and  the  modes  of  exercising  them 
we  will  now  turn. 

The  General  Commissioner  has  always  been  the  executive 
officer  of  the  Association.  His  duty  was  primarily  to  carry  out 
all  laws  passed  by  the  convention  or  the  committees.  But 
it  went  beyond  this.  He  had  a  conditional  legislative  power. 
By  written  authority  he  was  actually  made  a  special  agent 
of  each  of  the  roads,  and  was  supposed  to  look  after  the  inter- 
ests of  all  alike.  One  of  his  most  important  duties  was,  in 
connection  with  the  Auditor,  to  collect  and  publish  accounts 
of  the  business  transacted,  and  statistics  on  any  other  matters 
that  would  be  of  assistance  to  the  roads.  As  an  example  of 
this  function,  we  may  mention  certain  tables  in  regard  to  the 
capacity  of  the  different  Tank  Line  cars  for  the  transportation 
of  oils.  It  had  often  been  impossible  to  ascertain  the  exact 
weight  of  shipments  of  oil ;  and  it  was  arranged  that  in  future 
the  capacity  of  the  cars,  as  given  in  these  tables,  should  be 
taken  as  the  basis  in  calculating  the  charges.^ 

The  Commissioner  and  Auditor  were  to  keep  accounts  of  the 
business  done.  To  enable  them  to  do  this  the  agents  of  the 
initial  roads  were  ordered  to  forward  daily  to  the  Commissioner 
copies  of  all  waybills  of  through  business.^    At  the  same  time, 

1  17  Circular  Letters,  1622  ;  18  Ibid.,  193. 
2  20  Ibid.,  107  ;  and  22  Ibid.,  391.  s  gee  the  Agreement,  Article  18. 


SOUTHERN   RAILWAY  ASSOCIATION 


.30 


they  were  to  deposit  in  bank  to  the  order  of  the  Commissioner 
twenty  per  cent  of  tiie  revenue  from  such  business.  The 
accounts,  which  were  to  be  made  out  and  published  monthly, 
were  divided  into  nine  tables.  Table  A  showed  the  movements 
of  merchandise  during  the  month  from  each  Eastern  city  to  all 
division  points ;  the  route,  amount  performed  in  pounds  and 
revenue,  allowance  for  carriage  and  net  revenue  to  be  divided, 
percentages  and  revenue  allotment,  excess  in  the  amount  car- 
ried, and  the  cash  deposited  to  the  order  of  the  Commissioner.^ 
Table  B  gave  similar  information  for  the  two  months  previous, 
enabling  a  manager  to  tell  whether  his  road  was  gaining  or 
falling  behind  the  other  lines.  Tables  C  and  D  gave  similar 
information  about  the  cotton  business.  E  and  F  showed  the 
gross  revenue  and  balances  for  the  month  at  each  point  and 
at  all  points  combined,  for  merchandise  and  cotton  respectively. 

1  By  way  of  Illustration,  I  give  the  Commissioner's  Table  A  for  October, 
1882,  on  New  York  traffic  :  — 


New  York 

TO 

Athens,  Ga. 

o 
S  2 

5>. 

Oj  CS 

to  t> 

go 

Ed  ^ 

4) 

CO 

CJ    (0 

o    1. 

rt  o 

Name  of  Road 

M 

M 

^  S 

w.g 

Ph-^ 

S   m 

0)  .J 

®  ar 

and  Route 

o 

o 

^H 

■£  V 

S3  o3 

%^ 

%-z 

53  Q 

O 

O 

< 

"A 

Pm 

^ 

M 

M 

o 

N.  E.  R.R.  via 

Pied.  A.  L.    . 

149,687 

$1,045.85 

$209.17 

$836.68 

57.5% 

$1,029.69 

$193.01 

$201.55 

Ga.    R.R.    via 

Savannah     . 

18,800 

181.85 

36.37 

145.48 

17. 

304.43 

158.95 

34.18 

Ga.    R.R.    via 

Charleston  . 

149,332 

971.94 

194.39 

777.55 

17. 

304.43 

.$473.12 

194.12 

Ga.    R.R.    via 

A.  C.  L.    .     . 

2,205 

22.11 

4.42 

17.69 

5.1 

91.33 

73.64 

4.43 

Ga.    R.R.    via 

Port  Royal 

2,280 

16.70 

3.34 

13.36 

3.4 

60.88 

47.52 

3.34 

Totals  .    . 

322,304 

$2,238.45 

$447.69 

$1,790.76 

100% 

$1,790.76 

$473.12 

$473.12 

$437.62 

To  keep  these  various  accounts,  of  course  a  larger  force  of  clerks  was  neces- 
sary, entailing  a  considerable  expense.  This  expense  was  met,  first,  by  a  yearly 
membership  fee  of  $300  for  each  road,  and,  second,  by  assessments  on  the  vari- 
ous roads  in  proportion  to  their  revenue  from  competitive  business.  For  the 
year  ending  May  31,  1889,  the  expenses  of  the  Association  were  a  little  more 
than  $51,000. 


G  ijiwi'  till'  <]^r()ss  revoimo  and  balances  for  merchandise  and 
cotton  tt)nil»iiu'd,  at  all  points,  and  the  cash  deposited  lor  the 
month,  'i'llis  is  the  table  upon  which  the  settlements  were 
made.  H  gave  the  gross  revenue  from  merchandise  and  cotton, 
and  the  two  combined,  for  the  two  months  previous.  I  gave 
the  amount  of  the  Commissioner's  deposits,  where  deposited, 
the  character  of  the  business  on  which  deposit  was  made,  and 
by  whom  it  was  made.  In  1883  another  set  of  tables  was 
added,  showing  the  movements  of  cotton  factory  goods.  By 
means  of  these  various  tables,  the  manager  of  each  road  was 
enabled  to  see  at  a  glance  just  what  business  there  was  to  com- 
pete for,  and  what  share  his  road  was  getting.  They  showed 
him,  also,  the  basis  on  which  the  percentages  of  division  were 
calculated. 

Having  informed  the  roads  by  means  of  these  tables  of  the 
amount  of  their  indebtedness,  and  of  the  business  from  which 
it  arose,  the  Commissioner  and  Auditor  acted  as  clearing-house 
agents  for  the  settlement  of  the  accounts.  The  twenty  per  cent 
deposit  of  the  debtor  companies  was  applied  as  far  as  possible 
to  paying  their  balances,  and  sight  drafts  were  drawn  by  the 
Commissioner  for  any  excess.  The  deposits  were  relied  on, 
however,  to  pay  the  greater  part  of  the  indebtedness.  In  Sep- 
tember, 1884,  — to  take  a  month  at  random,  —  out  of  the  sixty 
lines  (routes)  for  which  accounts  were  kept,  twenty-one  had 
carried  more  than  their  share  of  freight.  Out  of  these  twenty- 
one,  ten  had  deposits  large  enough  to  cover  all  indebtedness. 
With  five  more,  the  excess  was  less  than  $100  ;  while  only  six 
of  the  twenty-one  owed  more  than  $100  in  addition  to  what 
their  deposits  would  cover.  The  deposit  practically  assured  a 
prompt  settlement  of  all  balances.  Whatever  remained  of  the 
twenty  per  cent  after  paying  the  debts  was  returned  monthly 
to  the  depositing  companies. 

The  Commissioner's  accounts  and  statements  obviously  could 
not  be  accepted  as  conclusive  unless  the  right  was  given  him 
to  examine  the  books  of  any  member  of  the  Association,  as  a 
safeguard  against  fraudulent  or  irregular  reports.  This  right 
was  given  by  Article  18  of  the  Agreement.     Some  instances 


SOUTHERN    RAILWAY  ASSOCIATION  137 

of  the  mode  in  which  it  was  enforced  will  serve  to  illustrate 
the  practical  working  of  the  Association.  In  the  fall  of  1886, 
one  of  the  Inspectors,  at  the  order  of  the  Auditor,  attempted 
to  examine  the  books  of  the  Alabama  Great  Southern  Road 
at  Chattanooga,  in  order  to  trace  some  cotton  shipped  from 
Atlanta.  The  officials  of  the  road  refused  to  allow  this  exami- 
nation ;  and  the  matter  was  brought  up  in  the  Executive  Com- 
mittee. A  vote  of  censure  on  the  road  was  there  passed,  and 
the  action  of  the  Alabama  Great  Southern  in  this  case  was 
treated  by  the  committee  simply  as  a  breach  of  the  agreement.^ 
In  1883,  however,  the  power  was  more  vigorously  exercised. 
It  had  been  charged  that  rebates  were  being  paid  on  compressed 
cotton  via  the  Atlantic  ports ;  and  the  Commissioner  was  in- 
structed by  the  Executive  Committee  to  examine  the  books 
of  the  railroad  companies  and  the  steamship  companies  carry- 
ing to  and  from  these  ports,  for  the  purpose  of  ascertaining 
whether  such  rebates  had  been  paid.^  Another  case,  even  more 
striking,  came  up  in  July,  1885.^  The  matter  of  rates  and 
rebilling  from  the  West  was  under  discussion.  The  Rate  Com- 
mittee requested  the  Commissioner  to  examine  the  rebilling 
records  of  the  Nashville,  Chattanooga  &  St.  Louis  Railroad, 
and  to  report  the  extent  of  such  business,  making  a  separate 
statement  of  each  class  of  freight  rebilled,  under  what  divisions 
and  to  what  points ;  and  also  a  statement  of  the  quantity  of 
similar  business  shipped  at  Nashville  rates.  The  examination 
was  made,  and  a  report  of  fifteen  or  more  printed  pages  pre- 
sented a  few  weeks  later.* 

1  20  Circular  Letters,  121. 

2  14  Ibid.,  21.3. 

8  17  Ibid.,  1625. 

*  18  Ibid.,  304.  Other  statistics  were  collected  by  the  Commissioner.  Among 
them  were  some  that  must  have  been  gathered  in  any  case ;  but  the  matter  was 
much  simplified  when  one  man  gathered  the  information  for  all  the  roads. 
Such,  for  example,  were  the  tables  of  the  "  arbitraries  "  charged  by  the  North- 
ern roads.  The  Southern  Association  made  rates  to  New  York,  Providence, 
Boston,  and  other  cities.  To  find  the  rates  on  cotton  (the  chief  North-bound 
business)  to  the  interior  New  England  manufacturing  town,  the  arbitraries 
given  in  these  tables  were  added  to  the  regular  Boston  rates,  and  gave  a 
desirable  uniformity  in  the  rates. 


l;}8 


irVlLW  AV    rKor.LEAKS 


We  turn  now  to  another  important  part  of  the  Commis- 
sioner's funetions.  The  tibjeet  of  the  Association  was  prima- 
rily to  maintain  rates.  Theoretically,  this  was  done;  but  in 
jtraelice  there  were  many  iireu^ularities.  (loods  were  often 
classilied  wrongly  or  were  underweighed.  Shippers  often  mis- 
represent the  goods  wlien  the  railroad  agents  aie  unable  to 
ascertain  for  themselves  their  qnality  and  class.  Often  the 
agents  are  willfully  negligent;  by  not  being  too  watchful  in 
classifying  and  weighing,  they  cut  rates  and  draw  the  trallic 
to  their  lines.  To  remedy  this  evil,  in  1886  (July  IG)  the 
Connnissioner  was  empowered  ^  to  appoint  two  Inspectors  of 
Weights  and  Classifications.  The  same  experiment  had  been 
tried  by  the  South-western  Association,  and  some  others,  and 
had  proved  very  successful.^  The  need  that  had  existed  for 
some  such  check  is  shown  by  the  following  table  of  the  work 
accomplished  by  the  Inspectors  in  the  first  year  after  they 
were  appointed :  ^  — 


Number 

OF  Shipments 

Corrected 


Weight 
Corrected 


Increase  in 
Revenue 


Oct.  1,  188G,  to  June  1,  1887 
One  month,  May,  1887     .     . 


10,173 
1,829 


11,992,037 
1,649,348 


$32,057.35 
5,112.21 


This  of  itself  shows  a  substantial  increase  in  revenue.  But 
the  effect  of  the  new  method  was  much  greater  than  the 
figures  of  corrections  would  indicate.  "  The  knowledge  that 
checks  have  been  j^rovided  makes  shippers  more  careful  than 
they  would  be  otherwise.  Hence  attempts  to  evade  the  classi- 
fication are  not  so  numerous  as  they  formerly  were,  or  as  they 
would  be,  did  not  the  shippers  know  that  we  were  watching 
to  prevent  irregularities."  *  Whenever  the  Commissioner  sus- 
pected that  fraudulent  practices  were  being  followed,  he  would 


'  19  Circular  Letters,  1717.  The  number  of  Inspectors  has  since  been 
increased.  2  19  /ft^-j^.^  i689.  3  21  Ibid.,  1627. 

*  Letter  from  .J.  W.  Midgeley,  Commissioner  of  the  South-western  Associa- 
tion, to  Mr.  Powers,  in  19  Ibid.,  1690. 


SOUTHERN  KAILWAY  ASSOCIATION  139 

send  an  Inspector  to  examine  and,  if  possible,  stop  them. 
The  Inspectors  were  also  sent  to  examine  the  books  of  a  com- 
pany, if  it  was  suspected  that  business  was  done  without  being 
reported.  In  1886,  the  East  Tennessee,  Virginia  &  Georgia 
road  was  charged  with  failing  to  report  all  the  cotton  carried 
to  Brunswick.  An  Inspector  examined  the  books  of  the  com- 
pany, and  watched  the  shipments  for  some  time,  in  this  case 
without  bringing  to  light  any  irregularity. 

******** 

The  second  important  part  of  the  machinery  of  the  Asso- 
ciation consists  of  the  Executive  Committee  and  the  Kate 
Committee,  whose  formation  and  powers  have  already  been 
described.  We  may  now  examine  some  particular  cases  illus- 
trative of  these  powers.  It  will  be  most  convenient  to  de- 
scribe them  irrespective  of  whether  they  came  up  in  the  Rate 
Committee  or  Executive  Committee.  The  reader  will  remem- 
ber that  the  Executive  Committee  is  the  higher  court,  as  it 
were,  and  that  any  matter  can  be  appealed  to  it  from  the  Rate 
Committee. 

Of  course,  the  first  duty  of  the  Rate  Committee  is  to  make 
rates  to  and  from  the  competitive  points.  This  statement  seems 
simple,  but  it  involves  more  than  appears  at  the  first  glance.  It 
brings  up  the  questions  of  (1)  division  of  the  business  on  which 
rates  have  been  made;  (2)  differentials  between  different  towns; 
(3)  classification  of  goods. 

A  fixed  rate  having  been  agreed  upon  for  the  competitive 
l)usiness,  a  division  of  the  business  follows  almost  of  necessity. 
There  are  always  differences  in  the  position  or  equipment  of 
the  competing  roads.  The  best  equipped  and  most  convenient 
road  would  naturally  get  most  of  the  business.  This  would 
ordinarily  lead  to  a  cutting  of  rates,  and  that,  too,  as  is  usual  in 
such  cases,  by  the  road  least  able  to  give  low  rates.  The  only 
way  to  prevent  a  continual  struggle  is  to  assure  the  weaker 
road  a  certain  proportion  of  the  business.  In  the  early  days  of 
the  Association,  divisions  were  agreed  upon  by  the  managers  of 
the  roads  for  eight  points,  —  Atlanta,  Augusta,  Macon,  Newnan, 
West  Point,  Opelika,  Montgomery,  and  Selma.    These  divisions 


140 


i;aii,\\a\    riior.LKMs 


were  bused  on  the  iu)rmal  currying  cui)ai'ity  of  the  roads,  as 
shown  in  the  business  of  tlie  years  past.  For  example,  the 
divisions  for  Atlanta  were  :  ^  — 


Merchandise 


Central  R.R 

Georgia  H.U 

Allantio  &  Uichiiioml  Air  Line  li.R. 

Western  &  Atlantic  U.ll 

Atlanta  &  West  Toint  K.  U.    .     .     . 


As  new  roads  were  built,  new  allotments  of  business  were 
demanded  or  allotments  at  new  places.  In  1886,  the  merchan- 
dise business  of  15  places  was  pooled ;  and  at  Atlanta  the 
number  of  pooled  routes  had  grown  from  5  to  12. 

Again,  some  of  the  old  lines,  by  offering  greater  facilities, 
might  feel  able  to  demand  a  larger  proportion  of  the  business. 
There  was  an  important  case  of  this  sort  in  1884,  on  the  Mont- 
gomery cotton  business.  From  January,  1881,  to  August, 
1883,  the  business  had  been  pooled  on  the  following  per- 
centages :  ^  — 

East  Tennessee,  Virginia  &  Georgia,  via  Calera 14% 

Louisville  &  Nashville,  via  Mobile,  and  North,  via  Louisville  & 

Nashville 48 

Montgomery  &  Eufaula  and  Western  of  Alabama 38 

In  1883,  the  East  Tennessee  became  dissatisfied  with  this 
division,  and  refused  to  renew  the  agreement,  asserting  that,  to 
avoid  paying  the  heavy  penalty  of  ti)<1.50  per  bale  for  excess  car- 
ried, they  had  been  compelled  to  turn  over  to  their  competitors 
several  thousand  bales  of  cotton.  In  1883-84,  the  cotton  busi- 
ness from  the  point  in  question  was  not  pooled,  and  the  East 
Tennessee  Road  carried  over  twenty-seven  per  cent  of  the  busi- 
ness, even  though  full  Association  rates  had  been  charged.  The 
next  year,  the  matter  came  up  in  the  Executive  Committee, 

1  1  Circular  Letters,  1. 

2  Argument  before  the  Board  of  Arbitration  by  the  East  Tennessee,  Virginia 
&  Georgia  Railroad. 


SOUTHERN   RAILWAY  ASSOCIATION  141 

where  an  attempt  was  made  to  settle  it.  This  failing,  it  went 
to  the  Arbitrators  for  a  decision.  They  gave  a  division  of  the 
business  as  follows  :  ^  — 


New  Division 

Old 

East  Tennessee 

22% 

42 

36 

14% 
48 

Louisville  &  Nashville 

Western  of  Alabama  and  Montgomery  &  Eufaula 

38 

A  similar  dispute  arose  at  about  the  same  time  over  the  Selma 
cotton  business.  The  Executive  Committee  agreed  to  refer 
the  matter  to  an  arbitrator.  Immediately  thereafter,  the  initial 
roads  entered  into  a  contract,  as  provided  in  Article  20  of  the 
'Agreement,  dividing  the  business  according  to  his  decision. 

In  close  connection  with  the  making  of  rates  is  the  matter 
of  classification.  In  the  classification  of  the  Association,  as  it 
stood  in  1886,  there  were  specified  in  round  numbers  1250 
articles.  The  classification  of  the  Association  was  adopted  in 
the  first  instance  by  the  annual  convention  of  1878,  but  since 
then  has  been  in  the  hands  of  the  Rate  Committee.  Even  the 
first  classification  was  drawn  up  and  proposed  by  a  committee 
corresponding  to  the  present  Rate  Committee.^  The  result  has 
been  a  single  uniform  classification  for  the  whole  Southern  ter- 
ritory, in  place  of  the  chaos  which  had  existed  before.  "  In 
July,  1876,  the  Eastern  lines  had  two  classifications.  The 
Savannah  line  used  9  classes,  and  the  Charleston  and  Coast 
lines  worked  5  and  6  classes.  The  Western  lines  were  using 
the  '  Green  Line '  classification,  with  a  number  of  '  Specials.'"  ^ 
The  advantage  of  having  one  classification  for  all  the  roads  in 

1  16  Circular  Letters,  41. 

2  19  Ibid.,  1687. 

^  19  Circular  Letters,  1687.  In  January,  1888,  a  committee  was  appointed 
by  our  Association  to  confer  with  the  Joint  Classification  Committee  of  the 
Trunk  Lines  Association  and  others,  for  the  purpose  of  ascertaining  what  possi- 
bility existed  for  establishing  a  uniform  classification.  But  thus  far  none  has 
been  agreed  upon  ;  and  it  is  questionable  whether  an  agreement  is  reached  at 
an  early  day,  unless  the  Interstate  Commerce  Commission  succeeds  in  bringing 
enough  pressure  on  the  roads. 


1  l'_>  JvAlLW  AY    i'KOi;LEM8 

:i  soot  ion  of  tJie  coiiiUry,  or  even  for  the  wliole  country,  if  that 
were  {lossihle,  is  ohvious. 

Thi'  third  task  involved  in  the  niakin«j^  of  rates  is  the  fixing 
of  the  (litTerentials  between  ni'iij^hhorini;-  eities.  The  general 
object  in  lixing  the  ditTerentials  was  to  make  such  rates  that 
all  cities  similarly  situated  shouhl  have  the  same  chance  in  the 
competition  of  trade.  Thus  a  New  York  nieuihant  would  have 
to  pay  the  same  rates,  Avhether  he  shipped  his  goods  to  Chat- 
tanooga, Dalton,  Konie,  Atlanta,  Athens,  Gainesville,  Anniston, 
or  Rirmingham.  On  the  other  hand,  Boston,  New  York,  Phila- 
delphia, were  treated  alike,  the  rates  to  and  from  any  given 
Southern  point  being  the  same.  Norfolk,  Portsmouth,  and 
Richmond  formed  another  group  ;  and,  again,  Charleston,  Port 
Royal,  Savannah,  and  Brunswick.  From  the  West,  rates  were 
the  same  from  Chicago  to  all  Eastern  ports,  such  as  Jacksonville, 
Fernandina,  Charleston,  Port  Royal,  Savannah,  and  Brunswick  ; 
and  in  like  manner  from  either  Louisville  or  Memphis  to  the 
Eastern  ports.  These  examples  suffice  to  indicate  the  principle 
on  which  differentials  were  adjusted.  As  new  roads  were  built, 
of  course  new  places  had  to  be  considered.  Thus,  in  1886,  the 
East  Tenenssee,  Virginia  &  Georgia  moved,  in  the  Rate  Com- 
mittee, that  the  rates  to  and  from  Rockmart,  Georgia,  be  the 
same  as  to  Cedartown,  Georgia.  The  two  towns  were  between 
ten  and  twenty  miles  apart,  and  were  doing  substantially  the 
same  business.  The  motion  was  lost,  and  the  matter  referred 
to  the  Executive  Committee.  There  again  it  was  lost,  and 
referred  to  the  Arbitrators,  who  finally  directed  that  the  rates 
to  Rockmart  be  the  same  as  to  Rome  and  Cedartown.^  At  an- 
other time,  in  August,  1886,  a  question  arose  as  to  differentials 
on  cotton  from  Atlanta  to  New  Orleans  and  to  Savannah.  The 
old  differentials  had  been  7  cents  per  100  pounds  in  favor  of 
Savannah.  The  motion  now  was  to  reduce  this  to  3  cents.  The 
Arbitrators  finally  agreed  on  a  compromise  differential  of  5 
cents,  the  rate  to  New  Orleans  being  put  at  50  cents  per  100 
pounds,  and  that  to  Savannah  at  45  cents.^ 

******** 

1  20  Circular  Letters,  102,  114,  121,  467. 
^19  Ibid.,  2041;  20  Ibid.,  47. 


SOUTHERN  EAILWAY  ASSOCIATION  143 

Next,  as  to  the  relations  of  the  Association  lines  with  outside 
lines.  In  its  dealings  with  these,  the  Association  has  not  always 
been  lenient,  especially  when  there  was  competition  between  its 
members  and  the  outsiders.  In  the  revised  rules  adopted  in 
December,  1876,  there  was  the  following  provision  :  "  If  any 
company  owning  or  operating  a  line  of  transportation  in  con- 
nection with  the  roads  or  lines  of  companies,  parties  hereto, 
shall  refuse  to  become  a  member  of  the  Association,  .  .  .  such 
line  shall,  as  far  as  practicable,  be  refused  recognition  as  part 
of  a  through  line."  ^  This  practically  amounted  to  boycotting 
such  lines.  The  provision  for  a  boycott  does  not  appear  in  the 
later  agreement,  though  there  have  been  recent  cases  where 
some  such  rule  would,  no  doubt,  have  been  very  acceptable  to 
the  roads  of  the  Association ;  as  when  the  Chesapeake  &  Ohio 
was  completed  to. Newport  News,  and  again  when  the  Kansas 
City,  jNIemphis  &  Birmingham  was  built  to  Birmingham.  These 
roads,  being  outside  of  the  Association,  often  reduced  the  rates 
and  materially  affected  the  business.  Following  up  the  policy 
here  indicated,  the  Commissioner,  in  August  6,  1877,  issued  a 
circular  authorizing  greatly  reduced  rates  to  Boston  and  New 
York  and  to  the  South  Atlantic  ports.  The  reason  was  that 
the  steamship  lines  to  and  from  these  points  had  refused  to  co- 
operate with  the  Association  in  carrying  out  its  rules.  Within 
three  weeks,  all  the  steamship  lines  had  signed  the  agreement, 
and  rates  were  restored.^ 

Equally. troublesome  was  the  competition  of  the  river  steam- 
boat lines.  Often  the  differentials  between  two  cities,  such  as 
St.  Louis  and  East  Cairo,  were  sufficient  to  allow  the  boats  to 
cut  rates,  even  after  paying  insurance.  To  prevent  this,  in  the 
case  referred  to,  the  rates  to  East  Cairo  were  advanced  enough 
to  make  them  the  same  as  to  Cairo,  across  the  river,  thereby 
reducing  the  differential  between  East  Cairo  and  St.  Louis  two 
cents  per  hundred  pounds  on  Classes  C  and  D,  and  four  cents 
per  barrel  on  flour.^  Rates  to  Selma  and  Montgomery  from  the 
East  were  cut  in  a  similar  way  by  the  New  York  &  IVIobile 
Steamship  Line.     The  Association  changed  their  rates  to  stop 

1  2  Circular  Letters,  598.  2  3  jua,^  897,  931.  •''  22  Ibid.,  131. 


1  1  I  KAILW  .\\     TKor-LKMS 

tlii.s  :   a   few   months   lator,   tlic   con^Jt'titioii   being  withdrawn, 
thov  were  restDieil.' 

Next,  let  us  Inrn  our  attention  to  the  Board  of  Arbitration. 
Tlie  chilies  of  the  lioard  have  alreatly  been  referred  to  in  a 
general  way,  and  in  tn-atin^  of  otlier  subjects  examples  have 
incidentally  been  given  of  the  exercise  of  their  powers.  It  will 
be  helpful  to  give  other  examples,  illustrating  the  variety  of 
cases  which  come  before  them. 

Perhaps  the  matter  that  they  had  to  consider  most  often  was 
that  of  making  divisions  of  the  competitive  lousiness,  of  which 
one  instance,  the  Montgomery  and  Selma  pool  settlement,  was 
considered  on  page  110.  We  there  saw  that  the  l)usiness  from 
these  points  was  pooled  from  1881  to  1883.  Then,  the  East 
Tennessee,  Virginia  &  Georgia  becoming  dissatisfied  with  its 
share,  a  j^ear  followed  without  the  pool.  But  in  1884  a  new 
division  of  the  business  was  made  by  the  Arbitrators,  whereby 
the  East  Tennessee  got  more  nearly  the  share  of  the  business 
which  it  demanded.  In  1886  this  question  came  before  the 
Arbitrators  again,  but  in  a  more  complicated  form.^  In  the  first 
place,  the  East  Tennessee  renewed  its  claim  for  a  larger  share 
of  the  business  from  these  points.  This  was  refused  in  the  case 
of  Montgomery,  but  from  Selma  the  East  Tennessee  got  one 
per  cent  in  addition  to  its  previous  proportion.  Next,  when 
the  annual  convention  was  held,  and  the  agreement  presented 
as  usual  for  signature,  the  Louisville  &  Nashville  refused  to 
sign,  on  the  ground  that  balances  to  the  amount  of  $5500  were 
still  due  it  on  the  Montgomery  and  Selma  pool.  This  amount 
was  said  to  be  due  from  the  East  Tennessee  Road,  which  had 
lately  gone  out  of  existence  by  the  foreclosure  of  a  mortgage, 
becoming  the  East  Tennessee,  Virginia  &  Georgia  Railway 
Company,  and  from  which,  in  consequence,  the  money  could 
not  be  collected.  After  having  been  debated  in  the  Executive 
Committee,  the  matter  was  handed  over  to  the  Arbitrators  to 
decide  what  balances,  if  any,  were  due,  and  how  they  were  to 

1  22  Circular  Letters,  21. 
^20  Ibid.,  53. 


SOUTHERN  RAILWAY  ASSOCIATION  145 

be  divided  among  the  several  roads.  They  agreed  that  the 
condition  of  the  accounts  before  August  31,  1884,  the  date  on 
which  the  second  pool  went  into  effect,  was  too  confused  to 
admit  of  any  unraveling.  Hence  all  balances  before  that  date 
were  considered  canceled  and  discharged.  On  the  business  after 
that  date,  they  decided  that  a  balance  of  -$3700  was  due  the 
Louisville  &  Nashville,  of  which  the  East  Tennessee  should  pay 
1976.  These  had  been  the  precise  amounts  given  in  the  accounts 
of  the  Commissioner.! 

Another  typical  case,  showing  the  usefulness  of  the  Arbitra- 
tors in  allotting  business,  came  up  in  connection  with  the  traffic 
of  Memphis  and  Nashville.  There  had  been  no  previous  division 
of  the  business  to  these  points,  and  rates  had  been  irregular  for 
a  considerable  time.  Finally,  in  the  summer  of  1885,  an  agree- 
ment was  made  by  the  East  Tennessee  and  the  Louisville  & 
Nashville  Roads,  the  competitors  for  the  business,  to  maintain 
rates,  and  ask  the  Arbitrators  to  allot  the  business.  This  allot- 
ment was  made,  and  accepted  by  both  roads.^ 

Another  case,  of  a  somewhat  different  sort,  was  brought 
up  by  the  Louisville  &  Nashville  ^  at  a  later  period.  LTnder  the 
terms  of  the  agreement,  the  initial  lines  from  any  point  "  shall 
determine  the  subdivisions  of  its  business  among  its  connec- 
tions." The  Louisville  &  Nashville  claimed  that  it  was  not 
receiving  from  the  Atlanta  &  West  Point,  with  which  it  con- 
nected, its  fair  share  of  the  Atlanta  cotton,  and  so  demanded 
an  apportionment,  extending  back  to  1877,  or  at  least  to  1884- 
85.  The  two  claims  differed  only  in  regard  to  the  dates.  In 
regard  to  the  second,  it  was  decided  that  a  fixed  share  of  the 
Atlanta  &  West  Point  business  should  be  given  to  the  Louis- 
ville &  Nashville,  the  share  to  be  determined  by  the  Audi- 
tors' accounts.*  In  regard  to  the  other,  no  division  was  allowed, 
on  the  grounds  that  previous  to  January  17,  1883,  the  part  of 
the  Louisville  &  Nashville  for  whi(;h  this  claim  was  made  had 
not  been  a  member  of  the  Association;  that  until  1884  it 
would  not  have  been  obliged  to  pay  over  the  receipts  from  any 

1  19  Circular  Letters,  2048;  20  Ibid.,  55.  s  20  Ibid.,  263. 

2  17  Ibid.,  1490.  *  20  Ibid.,  409. 


1  li;  KAII.W  AN'    I'KOI'.LKMS 

excess  llial  luinht  li;ive  falU'ii  to  it,  ami  so  slioulil  liave  no  claim 
for  a  ilclit'it  of  fivii^ht  carried.' 

At  another  lime,  cotton  was  sliij){)e(I  from  a  local  station  to 
Montgonierv,  a  competitive  ])oiiit.  on  a  local  bill  of  lading,  and 
then  reshipi)ed.  'I'his  was  held  tt)  l)e  subject  to  the  regular  pool 
divisions  oi"  Montgomery,  according  to  the  agreement,  by  which 
•'  all  business  from  or  to  a  crossing  or  meeting  point  of  two  or 
more  roads  is  joint  trallic.''  - 

A  peculiar  dispute,  important  as  illustrating  one  of  the  arti- 
cles of  the  agreement,  came  before  the  Board  in  1887.'^  It 
is  spoken  of  here  because  closely  connected  with  the  matter 
of  allotting  business.  Complaint  had  been  made  that  the  East 
Tennessee  Road  had  carried  some  cotton  from  Selma  which 
it  had  failed  to  report  for  division.  In  answer,  it  was  stated 
that  the  cotton  in  question  had  been  refused  by  the  Western 
Railroad  of  Alabama  and  others.  The  Board  held  that,  accord- 
ing to  Article  19  of  the  Agreement,  this  cotton  should  be  elimi- 
nated from  the  pool,  and  need  not  be  reported.  Article  19 
reads  that  "  each  company  shall  be  required  to  carry,  as  nearly 
as  possible,  its  allotted  proportion,"  but  "  no  penalty  shall  be 
imposed  upon  a  company  or  line  which  carries  an  excess  for 
the  benefit  of  any  company  that  refuses  or  willfully  neglects  to 
carry  its  allotted  proportion."  The  object  of  the  article  was,  of 
course,  to  keep  all  the  roads  in  the  market.  Its  effect  was  to 
maintain  competition,  notwithstanding  the  pool. 

Next  in  number,  but  less  varied  in  character,  are  the  cases 
relating  to  rates  and  differentials.  Some  of  these  have  already 
been  noted.  The  dispute  on  New  Orleans  and  Savannah  dif- 
ferentials, and  the  difficulties  that  arose  in  regard  to  steamship 
competition  on  Ohio  and  Mississippi  River  points,  were  in  the 
end  settled  by  the  Board.  Another,  of  a  typical  sort,  referred  to 
the  rates  on  iron  from  Birmingham  and  Chattanooga  to  St.  Louis. 

1  These  cases  are  interesting  in  another  way.  The  Louisville  &  Nashville  were 
dissatisfied  with  the  decisions  given,  and  asked  for  a  reopening  of  the  matter. 
Although  .such  a  thing  may  be  allowed,  and  at  times  has  been  allowed,  the  Arbi- 
trators at  this  time  did  not  .see  fit  to  grant  the  rehearing.    21  Ibid.,  1107. 

2  18  Ibid.,  205.  "       3  22  Ibid.,  155. 


SOUTHERN   RAILWAY   ASSOCIATION  147 

The  Kansas  City,  Memphis  &  Birmingham  Raih-oad  (not  in  the 
Association)  had  lowered  the  rate  from  Birmingham  to  St.  Louis. 
This  was  followed  by  a  similar  reduction  by  the  Association, 
but  without  a  corresponding  reduction  in  the  Chattanooga  rates. 
On  reference  to  the  Arbitrators,  it  was  decided  that  the  old  dif- 
ferential of  'fO.25  between  Chattanooga  and  Birmingham  should 
continue  in  force,  and  that  any  reduction  in  the  rates  from  Bir- 
mingham should  carry  with  it  a  corresponding  reduction  from 
Chattanooga.^ 

The  Board  of  Arbitration  have  also  had  to  consider  various 
other  questions.  Points  in  regard  to  classification  have  arisen, 
as  in  regard  to  the  classification  of  cotton  goods,  the  products 
of  Southern  mills.  These  goods,  which  had  been  favored  from 
the  outset  by  a  low  classification,  were  raised  in  1887  from  the 
sixth  to  the  fourth  class,  thereby  removing  in  part  one  of  the 
"  protective  "  features  of  the  system.  Even  after  this  change 
the  rates  were  not  the  same  both  ways.  Cotton  factory  goods 
South  bound  went  first  class  at  '$1.14  per  100  pounds,  New  York 
to  Atlanta.  Southern  factory  goods  North  bound  paid  now,  as 
fourth  class,  instead  of  49  cents,  73  cents.  "  But  for  the  fact," 
the  Arbitrators  said,  in  giving  their  decision,  "  that  finer  fabrics 
shipped  South  bound,  some  of  them  without  discovery,  are  of 
higher  value  than  those  shipped  North  bound,  the  still  exist- 
ing inequality  would  be  unjustifiable."^  Another  minor  matter 
which  has  come  before  the  Board  has  been  the  question  of 
insured  bills  of  lading.  The  agreement  provides,  in  Article  21, 
that,  "  in  cases  of  competition  between  all  rail  lines  and  water 
or  combined  water  and  rail  lines,  the  latter  may  assume  the 
whole  burden  of  insuring  against  marine  risks  ;  and  bills  of 
lading  to  that  effect  may  be  issued."  The  Arbitrators  decided 
that  such  insured  bills  of  lading  could  be  issued  in  competition 
with  all  rail  lines  only,  the  privilege  not  applying  between  two 
combined  rail  and  water  lines. ''^  Another  decision  was  as  to  what 
were  "  initial  roads "  under  the  agreement.  It  was  held  that 
the  phrase  "  initial  roads  "  is  not  used  in  distinction  to  "  termi- 
nal roads,"  but  that  the  responsible  road  at  any  given  point  was 

1  22  Circular  Letters,  363.      2  20  Ibid.,  201  ;  21  Ibid.,  1105.      »  16  Ibid.,  45. 


IIS  lv•AlL\^A^■  I'lv'or.i.EMS 

tlu'  initial  road.'  St  ill  aiuUher  decision  was  in  regard  to  "  milling 
in  transit, "'  wliiili  was  lu'ld  to  bo  a  form  of  rebilling,  and  hence 
prohibited. - 

These  Ciuies  have  been  cited,  not  because  in  themselves  of 
great  importance,  but  because  they  show  the  great  variety 
of  matters  which  the  Arbitratois  had  to  deal  with.  They  are 
all  ty[»cs  of  cases  that  come  up  often.  They  include,  either 
directly  or  indirectly,  nearly  all  the  matters  over  which  the 
Association  had  control,  '^llie  task  of  the  Board  has  been  by 
no  means  an  easy  one.  There  were  many  masters  to  please, 
but  it  has  performed  its  functions  wdthout  even  a  suspicion  of 
dishonesty  or  partiality. 

We  have  thus  far  been  considering  in  detail  the  organization 
and  \vorkings  of  the  Association  as  it  existed  down  to  1887.  It 
now  remains  to  note  the  changes  which  were  brought  about  by 
the  Interstate  Commerce  Act  passed  in  that  year.^  The  Act, 
iirst  of  all,  stopped  the  pooling  feature  of  the  Association.  The 
twenty  per  cent  deposits  were  no  longer  called  for,  and  the  pay- 
ment by  one  road  to  another  of  any  excess  of  earnings  above 
allotment  was  put  an  end  to.  The  daily  reports  of  business  and 
the  monthly  tables,  however,  were  still  continued.  The  act  also 
required  some  readjustment  of  rates.  While  each  road  reported 
its  rates  to  the  Interstate  Commerce  Connnission  directly,  and 
aimed  to  keep  them,  as  nearly  as  possible,  in  line  with  the  deci- 
sions of  that  Commission,  yet  the  through  rates  were,  in  the 
main,  discussed  and  arranged  as  before  by  the  Rate  Conmiittee  of 
the  Association.  At  first  the  committee  of  the  Association  had 
some  difiiculty  in  arranging  rates  so  as  to  compete  successfully 
with  the  river  lines,  and  therefore  asked  for  and  obtained  a  sus- 
pension for  ninety  days  of  the  long  and  short  haul  clause  of  the 
act.  Tiie  delay  was  asked  mainly  to  give  time  for  rearranging 
the  rates  without  disturbing  more  than  was  necessary  the 
interests  of  the  shippers.  In  making  the  rearrangement,  a 
partial  reclassification  was  necessary ;  and  the  number  of  places 

1  18  Circular  Letters,  203.  2  20  Ibid.,  2r,9. 

3  Later  details  are  given  in  the  Cincinnati  Freight  Bureau  Cases,  vide,  p.  154, 
infra.  —  Ed. 


SOUTHERN  RAILWAY  ASSOCIATION  149 

to  which  through  rates  were  made  was  somewhat  reduced,  in 
order  to  get  more  nearly  in  Hne  with  the  requirements  of  the 
law.  The  Association  was  recognized  by  the  Interstate  Commerce 
Commission,  and  on  several  cases  has  been  summoned  to  appear 
before  it  for  examination.^  Complaints  have  also  been  brought 
against  the  Association  before  the  Commission  for  illegal  rates. 
At  times  the  roads  over  which  the  rates  in  question  were 
given  were  joined  as  codefendants,  but  this  has  not  always  been 
the  case. 

The  prohibition  of  pooling  by  the  Interstate  Commerce  Act 
by  no  means  put  an  end  to  the  power  of  the  Association.  It 
still  continues,  having  for  its  object  the  saving  of  revenue  by 
the  maintenance  of  rates.  Though  pool  divisions  may  no  longer 
be  made  use  of,  fines  may  be  imposed  to  accomplish  the  same 
end.    A  recent  case  will  serve  to  show  how  this  is  done. 

In  the  adjustment  of  rates  from  Eastern  cities  to  Southeastern 
points,  it  happened  that  a  combination  of  "  locals  "  from  Balti- 
more to  some  of  these  cities  was  less  than  the  through  rates. 
This  was  not  true  from  any  other  city.  The  business,  however, 
from  Baltimore  to  the  points  in  question  was  so  small  that  the 
differences  amounted  to  nothing.  One  road,  without  consulting 
the  Commissioner,  I'educed  the  through  rates  to  this  combination 
of  locals,  thereby  affecting  all  through  rates  from  New  York  and 
Philadelphia  to  these  Southeastern  points.  The  Interstate  Act 
requires  that  notice  of  reductions  of  rates  must  be  filed  in  the 
office  of  the  Commission  at  least  thi-ee  days  before  they  can  go 
into  effect  ;  for  the  Southern  Railway  &  Steamship  Association 
territory  the  practice  is  that  all  changes  are  made  by  the  Rate 
Committee,  and  notice  is  given  at  Washington  by  the  Commis- 
sioner. The  road  in  question  filed  notice  of  reduction  itself  with 
the  Interstate  Commerce  Commission,  and  then  notified  the  Com- 
missioner of  the  Southern  Association  of  the  intended  change. 
That  officer  at  once  notified  the  other  roads  interested  ;  but 
these  protested  against  the  reduction  as  unnecessary  and  unwise, 
and  asked  that  the  rates  be  not  put  into  effect  until  the  matter 
could  be  brought  before  the  Rate  Committee.    Notwithstanding 

1  Interstate  Commerce  Reports,  Vol.  Ill,  p.  7. 


l-'iO  KA1L\NA\    i'iCUllLK.M.S 

tliesi'  rt'imiiistnuH't's,  the  rates  were  put  into  force  as  originally 
planned.  Tliereupon  one  road,  eonneeting  with  a  water  line, 
in  relalialion  issued  insured  bills  of  lading;  another  refused 
to  auliiori/.e  the  leduced  rates  exee[)t  upon  order  of  the  Com- 
missioner of  the  Association.  Permission  to  use  them  was 
given  \)\  the  Commissioner;  but,  as  the  rates  were  not  officially 
announced  by  him,  the  road  still  refused  to  use  the  reduction  or 
honor  bills  of  lading  given  at  the  reduced  rates.  The  matter 
was  very  soon  brought  before  the  Executive  Committee  in  the 
shape  of  a  complaint.  It  was  referred  by  them  to  the  Arbitra- 
tors, who,  after  a  full  hearing,  ordered  the  original  rates  to  be 
restored  and  the  offending  road  to  pay  a  fine  of  If'SOOO.  The  fine 
was  paid,  and  rates  were  restored  within  three  weeks  after  the 
original  reduction. 

This  brings  the  Association  to  date.  Let  us  now  glance  at  its 
effects  on  the  roads  and  on  the  public. 

There  can  be  no  doubt  that  it  has  been  of  great  benefit  to  the 
roads.  It  has  secured  the  maintenance  of  rates,  and  an  adjusted 
share  of  business  to  each  line.  The  stronger  lines  would  perhaps 
have  survived  without  this  division,  but  hardly  the  weaker.  As 
to  the  public,  the  regularity  of  rates  has  helped  the  growth 
of  the  country,  and  this  has  reacted  in  turn  to  the  benefit  of 
the  roads.  The  trafiic  has  increased  enormously.  The  amount 
of  cotton  carried  North  from  all  pooled  points  has  more  than 
doubled  from  1877-78  tol885-86.  In  1877  it  was  297,284  bales; 
in  1885-86  it  was  664,337.^  The  amount  of  merchandise  South 
bound  has  increased  in  the  same  time'  from  seventy  million 
pounds  to  nearly  one  hundred  and  fifty  million.  The  total  of 
merchandise  carried  South  in  this  time  to  all  pooled  points  was 
1,285,928,199  pounds,  with  a  revenue  of  88,747,564.  The  total 
cotton  revenue  in  this  time  was  -110,905,000.  During  the  same 
period,  the  General  Commissioner's  deposits,  referred  to  above, 
were  -11,636,270. 

The  regularity  of  rates  under  the  Association  is  the  advan- 
tage to  the  public  most  distinctly  due  to  its  existence.  Changes 
in  rates  have  been  comparatively  few,  and  secret  rebates  rare. 

1  21  Circular  Letters,  1626. 


I 


SOUTHERN   RAILWAY  ASSOCIATION 


151 


Such  changes  as  took  place  have  been  almost  uniformly  down- 
ward ;  and,  as  reasonable  notice  of  these  has  been  given,  there 
has  been  no  offset  to  the  public's  gain  such  as  sudden  and  fluc- 
tuating reductions  bring.  The  figures  in  the  note  show  the 
steady  downward  trend  of  rates,  and  prove  at  least  that  the 
effect  of  the  Association  was  not  to  maintain  rates  at  any  fixed 
high  figure.^  Certainly,  that  part  of  the  public  which  had  to  do 
directly  with  the  roads  in  the  Association  was  not  dissatisfied 
with  the  working  of  the  pool.  In  1887  the  General  Commis- 
sioner was  able  to  say  at  the  annual  convention,  "  There  has 
been  literally  no  complaint  of  discrimination  between  individ- 
uals in  the  same  locality,  and  very  little  (and  that  unreasonable) 
between  localities."  ^ 

In  conclusion,  a  word  may  be  said  of  the  effect  of.  the  Asso- 
ciation in  maintaining  rather  than  suppressing  competition 
among  the  roads.  Pools  of  which  this  is  a  type  do  indeed  limit 
competition.  But  it  is  a  great  mistake  to  suppose  that  they 
destroy  competition.  On  the  contrary,  as  Professor  Seligman 
puts  it,^  "  they  maintain  the  advantages  of  a  healthy  competi- 
tion.   Each  of  the  roads  will  still  attempt  to  procure  as  much 


1  The  rates,  in  cents  per  hundi-ed  pounds  on  numbered  classes,  from  Eastern 
cities  to  Atlanta  on  the  first  of  January  of  each  year,  have  been  :  — 


From 

From 

Year 

BosTOK,  New  Yokk,  Philadelphia 

Baltimore 

1 

2 

3 

4 

5 

6 

1 

2 

3 

4 

5 

6 

1875  .  . 

170 

140 

110 

90 

80 

70 

160 

130 

100 

85 

75 

65 

1876  .  . 

170 

140 

110 

90 

80 

70 

160 

130 

100 

85 

75 

65 

1877  .  . 

145 

125 

100 

80 

60 

50 

135 

115 

90 

75 

55 

45 

1878  .  . 

145 

125 

100 

80 

60 

50 

135 

115 

90 

75 

55 

45 

1879  .  . 

125 

110 

85 

75 

60 

45 

119 

104 

79 

71 

56 

41 

1880  .  . 

125 

110 

85 

75 

60 

45 

119 

104 

79 

71 

56 

41 

1881  .  . 

126 

110 

94 

81 

65 

41 

119 

104 

89 

76 

61 

46 

1882  .  . 

100 

90 

80 

70 

58 

48 

95 

85 

75 

65 

55 

45 

1883  .  . 

125 

108 

93 

78 

63 

49 

118 

102 

88 

73 

59 

46 

1881  .  . 

114 

98 

86 

73 

60 

49 

107 

92 

81 

68 

56 

46 

1885  .  . 

114 

98 

86 

73 

60 

49 

107 

92 

81 

68 

56 

46 

188G  .  . 

114 

98 

86 

73 

60 

49 

107 

92 

81 

68 

56 

46 

1887  .  . 

114 

98 

86 

73 

60 

49 

107 

92 

81 

68 

56 

46 

2  21  Circular  Letters,  1620. 

8  In  the  Political  Science  Quarterly,  Vol.  II,  p.  389. 


l0L> 


HA  11. WAV   THOl'.LKMS 


business  as  can  possibly  be  obtained  in  a  fair  and  open  manner." 
Tlio  ajxi'cenient  of  the  Southern  Railway  &  Steamship  Association 
was  renewed  yearly,  and  most  of  tlie  contracts  for  division  of 
business  were  made  for  a  year  at  a  time.  Each  road  tried  to 
carry  as  mucii  freight  as  possible,  so  that,  when  the  next  con- 
tract came  to  be  made,  it  might  demand  with  some  show  of 
reason  a  larger  share  of  the  business.  It  is  competition  of  this 
sort  that  is  advantageous,  not  competition  with  little  or  no 
regard  to  the  cost  of  doing  the  work. 

Henry  Hudson 


VI 

UNREASONABLE  RATES 

The  Cincinnati  Freight  Bureau  Case^ 

Clements,  Commissioner : 

The  complaints  in  these  cases,  which  were  heard  and  may  be 
disposed  of  together,  were  filed,  respectively,  by  the  Freight 
Bureau  of  the  Cincinnati  Chamber  of  Commerce  and  the  Chicago 
Freight  Bureau.  The  former  will  hereinafter  be  referred  to  as 
the  Cincinnati  case,  and  the  latter  as  the  Chicago  case. 

In  both  complaints,  Baltimore,  Philadelphia,  New  York,  Bos- 
ton and  contiguous  territory,  are  designated  "Eastern  Seaboard 
territory ; "  Knoxville  and  Chattanooga,  Tenn.,  Rome  and 
Atlanta,  Ga.,  Birminghiim,  Anniston  and  Selma,  Ala.,  Meridian, 
Miss.,  and  contiguous  territory,  "  Southern  territory ; "  and 
Cincinnati,  Ohio,  Louisville,  Ky.,  Indianapolis  and  Evansville, 
Ind.,  Chicago  and  Cairo,  111.,  St.  Louis,  Mo.,  and  contiguous 
territory,  "  Central  territory."  These  designations  will  be  so 
applied  in  this  opinion. 

The  general  ground  of  complaint  in  the  Cincinnati  case  is 
that  the  rates  of  freight  established  by  the  defendant  carriers  from 
the  Eastern  Seaboard  and  Central  territories,  respectively,  to 
Southern  territory,  "  unjustly  discriminate  in  favor  of  the 
merchants  and  manufacturers  whose  business  is  located  and 
transacted  in  Eastern  Seaboard  territory  and  against  the  mer- 
chants and  manufacturers  whose  business  is  located  and  trans- 
acted in  Cincinnati  and  other  points  in  Central  territory."  It  is 
stated  that  "  the  burden  of  the  complaint  lies  against  the  relation 
which  exists  between  the  current  rates  of  freight  on  manufactured 

1  Decided  May  2!),  1894.  Interstate  Commerce  Reports,  Vol.VI,  pp.  195-256. 
Overruled  by  the  Supreme  Court,  vide,  p.  187,  infra.  The  final  disposition  of  it 
at  p.  198,  infra.  The  entire  history  of  this  suggestive  case  may  be  traced  by 
means  of  the  index  in  Ripley's  Railroads  :  Rates  and  Regulation. 

153 


i:)4  iJAiLWAV  ritor.i.K.Ms 

(trticlcK  (tnd  nwrchdiuliftc "  (nuinbercd  classes)  "•  from  Eastern 
Se!il)t);uil  territorv  ti)  Southern  territory,  and  the  current  rates 
of  frcii^ht  exacted  upon  like  connuodities  when  sliipped  from 
Central  territory  to  the  South,  and  against  the  unfair  basis  of 
jjfeneral  construction  of  the  tariffs  under  consideration  whereby 
the  rates  charged  for  transportation  of  connuodities  classitied 
under  '  numbered  classes  '  bear  a  mucli  higher  percentage  relation 
to  the  rates  from  Xew  York  than  do  the  rates  on  connuodities 
enumerated  under  the  lettered  classes"  (food  products  and  simi- 
lar heavy  traffic) ;  and  it  is  alleged,  ''  that  this  improper  relation 
between  rates  has  the  effect  of  restraining  and  impeding  the 
growth  of  productive  industries  in  Central  territory  and  encourag- 
ing and  promoting  similar  industries  in  Eastern  Seaboard  terri- 
tory, and  is  the  direct  result  of  an  agreement  established  by 
convention  between  the  officers  of  defendants,  whereby  in  order 
to  secure  stability  in  rates  and  to  prevent  competition  between 
the  lines  leading  respectively  from  the  Eastern  Seaboard  and 
Central  territories  to  the  South,  it  Avas  decided  to  secure  to  the 
Eastern  lines  and  Eastern  territory  the  traffic  in  merchandise 
and  manufactured  articles  and  to  the  Western  territory  the 
traffic  in  food  products  and  similar  heavy  commodities."  In 
support  of  these  charges  as  to  the  alleged  "  improper  relation  " 
between  the  rates  from  Eastern  territory  and  Central  territory 
to  Southern  territory,  and  between  those  on  the  numbered  and 
lettered  classes,  tabular  statements  are  given  of  the  distances, 
and  class  rates  from  leading  points  in  the  Eastern  and  Central 
territories  to  the  points  named  above  in  Southern  territory  and 
of  the  percentage  relation  borne  by  rates  and  distances  from 
Cincinnati  to  those  from  New  York. 

The  complaint  in  the  Chicago  case  contains  similar  tabular 
statements  and  charges,  made  applicable  to  Chicago,  and  in 
addition  calls  in  question  the  reasonableness  in  themselves  of  the 
through  rates  from  Chicago  to  Southern  territory  by  the  aver- 
ments "  that  traffic  between  Chicago  and  the  Southern  territory 
is  through  traffic  and  it  is  unjust  to  Chicago  that  rates  from  that 
point  should  be  exacted  by  defendants  based  upon  unreasonably 
high  rates  between  Cincinnati  and  other  Ohio  river  crossings 


T^ 


liL  ■'^J\'(\ 


\  »3 


/      N. 


"K.-' 


MAP 

SHOWING. 

PRINCIPAL  RAILROAD  SYSTEMS 

IN  THE 

SOUTHERN    STATES 


Souihern   Railroad  System 

Seaboard  Air  Line 

Allaniic  Coast  Line 

Central  (f  Georgia  R  R 

Louisville  a  Nashville  R  R. 

NX  &  Si  L  ( Western  &  Atlantic) 

Illinois  Central   R.R 

Plant  System 

Norfolk  a  Western  R  R 


^ 


:rc^^>^ 


UNEEASONABLE   KATES  155 

and  Southern  territory,  to  which  are  added  substantially  the 
local  rates  in  effect  from  Chicago  to  Cincinnati  and  said  other 
Ohio  river  crossings,"  and  that  "  if  Cincinnati  rates  are  to  be 
taken  as  a  basis,  the  rates  from  Chicago  to  Southern  territory 
should  be  some  fair  percentage  above  the  rates  from  Cincinnati, 
or  some  other  arbitraries  above  the  Cincinnati  rates  as  the 
present  New  York  and  Boston  rates  are  above  the  rates  from 
Baltimore."  It  is  also  alleged  that  "  the  same  rates  are  charged 
from  New  York  and  from  Boston  to  points  in  Southern  territory 
whose  distances  vary  more  than  500  miles,"  and  it  is  claimed, 
that  "if  equal  rates  prevail  from  points  widely  separated  in 
Eastern  territory  such  as  New  York  and  Boston  to  Southern 
territory,  the  same  basis  should  govern  in  rate  making  to  the 
same  Southern  points  from  stations  in  Central  territory,  such  as 
Cincinnati  and  Chicago,  which  are  much  nearer  together  than 
New  York  and  Boston."  The  prayer  of  the  complainants  in 
both  cases  is  for  an  order  commanding  the  defendants  to  desist 
from  the  alleged  violations  of  the  Act  to  Regulate  Commerce 
and  requiring  them  to  so  adjust  their  several  freight  tariffs  as 
to  afford  the  merchants  and  manufacturers  of  Cincinnati  and 
Chicago  and  other  points  in  contiguous  territory  "  a  fair  and 
equal  opportunity  to  deliver  their  products  to  consumers  in  the 
South  upon  such  terms  of  equality  compared  with  their  com- 
petitors in  Eastern  Seaboard  territory,  as  their  geographical 
position,  commercial  ability  and  ample  transportation  facilities 
will  justify." 

In  the  Cincinnati  case  answers  are  filed  by  the  Cincinnati, 
New  Orleans  &  Texas  Pacific  Railway  Company  et  al.  .  .  .  They 
all  deny  the  general  charge,  that  the  rates  over  tlie  respective 
lines  of  transportation  from  the  Central  and  Eastern  Seaboard 
territories  to  Southern  territory  unjustly  discriminate  against 
Central  territory  in  favor  of  Eastern  Seaboard  territory.  It  is 
alleged  in  substance  that  the  all  rail  rates  from  Eastern  Seaboard 
to  Southern  territory  are  determined  by  the  combined  rail  and 
water  rates  from  Boston,  New  York,  Philadelphia  and  Baltimore 
via  Steamship  lines  to  Charleston  and  Savannah  and  thence  by 
rail  to  the  interior,  and  that  the  rates  from  Cincinnati  and  other 


156  i;ail\\a\'   imjoiuj^ms 

points  in  Central  tenitoiy  are  not  tlius  controlled  by  water  com- 
petition. The  other  allegations  of  the  complaint  stated  above 
are  also  denied,  and  it  is  claimed  by  most  of  the  respondents  that 
the  transportation  in  which  they,  as  members  of  through  lines 
from  their  respective  territories  to  the  South,  are  engaged,  is  not 
"  undrr  a  connnon  control,  management  or  arranagement^for  a  con- 
tinuous carriage  or  shipment,''''  within  the  meaning  of  those  words 
as  used  in  the  first  section  of  the  Act  to  Regulate  Commerce. 

In  the  Chicago  case  answers  are  filed  by  the  following  railway 
companies :  the  Louisville,  New  Albany  &  Chicago,  et  al.  .  .  . 
These  answers  present  substantially  the  same  issues  as  are  raised 
in  the  Cincinnati  case.  It  will  be  noted,  that  in  addition  to  the 
railroad  and  steamship  companies  made  parties  defendants  in  the 
Cincinnati  case,  the  complaint  in  the  Chicago  case  is  filed  against 
a  number  of  railroad  companies  running  from  Chicago  to  Cin- 
cinnati and  other  Ohio  river  points.  These  roads  allege  that 
their  "  rates  are  confined  to  the  Ohio  river,  and  that  the  through 
rate  to  any  point  south  of  the  Ohio  river  is  made  by  adding  their 
rates  to  the  Ohio  (exclusively  made  by  them)  to  the  rates  estab- 
lished by  the  lines  south  thereof,  to  the  point  of  destination, 
over  which  rates  south  of  the  Ohio  they  neither  possess  nor 
exercise  any  control  whatever,  either  as  to  the  making  or  en- 
forcement thereof."  They  also  afitirm  the  reasonableness  of  their 
rates  north  of  the  Ohio. 


Facts 

1.  The  tabular  statements  mentioned  above  as  being  con- 
tained in  the  complaints  purporting  to  show  distances  and  class 
rates  from  Cincinnati  and  Chicago  in  Central  territory  and  from 
Boston,  New  York,  Philadelphia  and  Baltimore,  in  Eastein  Sea- 
board territory,  to  the  jooints  designated  as  being  in  Southern 
territory,  and  also  giving  the  percentage  relation  borne  by  such 
distances  and  rates  from  Cincinnati  and  Chicago  to  those  from 
New  York  are  found  to  be  correct  with  a  few  immaterial  excep- 
tions. The  following  are  those  statements  corrected  and  show- 
ing current  rates  and  percentages :     [Abridged.  —  Ed.] 


UNREASONABLE  KATES 


157 


TABULAR  STATEMENT  OF  DISTANCES,  CURRENT  RATES,  AND  PER- 
CENTAGES BETWEEN  CINCINNATI  AND  CHICAGO  AND  NEW 
YORK,  PHILADELPHIA,  BOSTON  AND  BALTIMORE  AND  SOUTH- 
ERN POINTS 

To  Knoxville,  Tenn. 


CLASSES 

Per 
Bbl 

From 

DiST. 

1 

3 

3 

4 

5 

6 

A 

B 

C 

D 

E 

F 

38 

H 

Cincinnati  .  . 

290 

76 

65 

57 

47 

40 

30 

20 

26 

23 

19 

34 

33 

Chicago  .  .  . 

560 

116 

99 

82 

64 

55 

42 

32 

38 

33 

29 

47 

58 

48 

New  York  .  . 

735 

100 

85 

70 

55 

48 

40 

36 

40 

36 

36 

48 

55 

72 

Philadelphia  . 

G45 

108 

92 

83 

71 

58 

47 

34 

46 

38 

37 

56 

74 

66 

Boston  .  .  . 

948 

100 

85 

70 

55 

48 

40 

36 

40 

36 

36 

48 

72 

55 

Baltimore  .  . 

549 

95 

80 

65 

50 

45 

37 

33 

37 

33 

33 

45 

66 

52 

Percentage 

Chic,  of  N.  Y.  . 

78 

116 

116 

117 

116 

115 

105 

89 

95 

92 

81 

98 

105 

67 

Cinn.  of  N.  Y.  . 

39 

76 

76 

81 

85 

83 

75 

56 

65 

64 

53 

71 

69 

46 

To  Chattanooga,  Tenn. 


Cincinnati  . 

335 

76 

65 

57 

47 

40 

30 

20 

26 

23 

19 

34 

38 

33 

Chicago  .  .  . 

595 

116 

99 

82 

64 

55 

42 

32 

38 

33 

29 

47 

58 

48 

New  York  .  . 

847 

114 

98 

86 

73 

60 

49 

36 

48 

40 

39 

58 

78 

68 

Philadelphia  . 

757 

108 

92 

84 

71 

58 

47 

34 

46 

38 

37 

56 

74 

66 

Boston  .  .  . 

1060 

114 

98 

86 

73 

60 

49 

36 

48 

40 

39 

58 

78 

68 

Baltimore  .  . 

661 

106 

90 

83 

70 

57 

46 

33 

45 

37 

36 

55 

72 

65 

Percentage 

Chic,  of  N.  Y.  . 

70 

102 

101 

95 

88 

92 

86 

89 

79 

82 

74 

81 

74 

70 

Cinn.  of  N.  Y.  . 

40 

67 

66 

66 

64 

67 

61 

56 

54 

58 

49 

59 

49 

49 

To  Atlanta,  Ga. 


Cincinnati  . 
Chicago .  . 
New  York  . 
Philadelphia 
Boston  .  . 
Baltimore    . 

Percentage 
Chic,  of  N.  Y. 
Cinn.  of  N.  Y. 


475 

107 

92 

81 

68 

56 

46 

28 

35 

28 

24 

48 

48 

733 

147 

126 

106 

85 

71 

58 

40 

47 

38 

34 

61 

68 

876 

114 

98 

86 

73 

60 

49 

36 

48 

40 

39 

58 

78 

786 

114 

98 

86 

73 

60 

49 

36 

48 

40 

39 

58 

78 

1089 

114 

98 

86 

73 

60 

49 

36 

48 

40 

39 

58 

78 

690 

107 

92 

81 

68 

56 

46 

34 

45 

37 

36 

55 

72 

84 

129 

128 

123 

116 

118 

118 

111 

98 

95 

87 

105 

87 

54 

94 

94 

94 

93 

93 

94 

78 

73 

70 

62 

83 

62 

53 
68 
68 
68 
68 
65 

100 

78 


ir»s 


UAll.W  .vv  ruor.LKiMS 


'2.  Tlu'  tlistaiu'cs  from  the  Kastoni  St'ahoard  cities  in  the 
above  sialenients  are  all  rail,  while  the  rates  are  rail  and  water^ 
or  based  on  the  rail  and  water  rates  ;  both  the  distances  and 
rates  from  Cineinuati  and  Chicago  are  all  rail.  There  are  a 
number  of  steamship  lines  running  from  the  Eastern  Seaboard  to 
Charleston,  Savannah  and  other  southern  ports,  namely,  the 
Ocean  Steamship,  the  IMallory,  the  Morgan,  the  Clyde,  and  the 
Merchants  and  Miners  ;  and  the  above  combined  rail  and  water 
rates  appear  to  be  made  by  adding  the  rate  of  the  steamer  lines 
to  the  rate  of  the  rail  lines  from  the  ports  to  interior  j)oints.  The 
actual  mileage  by  water  from  New  York  to  Charleston  and 
Savannah  is  estimated  at  about  750  miles,  but  the  rates  of  the 
steamer  lines  are  made  on  the  basis  of  what  is  termed  by  the  wit- 
nesses a  "constructive  mileage"  of  230  miles  to  Charleston  and 
250  miles  to  Savannah,  that  is,  the  water  rate  from  New  York  to 
Charleston  is  equal  to  the  rail  rate  for  230  miles  by  land,  and 
to  Savannah,  to  the  rail  rate  for  250  miles.  The  all  rail  distance 
from  New  York  to  Charleston  is  799  miles  and  to  Savannah 
914  miles.  The  following  are  the  distances  from  Charleston 
and  Savannah  by  rail  to  the  interior  points  named : 


From  Chakleston  to 

Miles 

From  Savannah  to 

Miles 

Knoxville 

533 

Knoxville 

520 

Chattanooga 

446 

Chattanooga 

433 

Atlanta 

308 

Atlanta 

295 

Rome 

367 

Rome 

367 

Birmingham 

475 

Birmingham 

462 

Anniston 

412 

Anniston 

399 

Selma  {via  E.  T.  V.  &  G.)  •     . 

561 

Selma  {via  S.  F.  R.  R.)    .     . 

462 

Meridian  {via  E.  T.  V.  &  G.) . 

671 

Meridian  {via  E.  T.  V.  &  G) 

669 

The  sums  of  the  "constructive"  mileages  of  230  miles  from 
New  York  to  Charleston  and  250  miles  to  Savannah,  plus  the 
actual  rail  mileages  to  interior  points  above  given,  are  shown 
by  the  following  table : 


UNREASONABLE  RATES 


159 


Fkom  N.Y.  via  Chakleston  to 

Miles 

From  N.Y.  via  Savannah  to 

Miles 

Knoxville 

763 

Knoxville 

770 

Chattanooga 

676 

Chattanooga 

683 

Atlanta 

538 

Atlanta 

545 

Rome 

597 

Rome 

617 

Birmingham 

705 

Birmingham 

712 

Anniston 

642 

Anniston 

649 

Selma 

791 

Selma 

712 

Meridian 

901 

Meridian 

919 

These  are  what  are  termed  the  "  rate-making  mileages  "  from 
New  York  by  water  to  Charleston  and  Savannah  and  thence  by 
rail  to  the  interior  points  named,  upon  w4iich  the  combined  rail 
and  ivater  rates  from  New  York  are  based.  The  rail  and  water 
rates  from  the  Eastern  Seaboard  cities  to  Southern  territory  prac- 
tically control  the  all  rail  rates.  The  all  rail  rates  are  the  same 
as  the  rail  and  water  rates  to  Knoxville,  Chattanooga,  Birming- 
ham, Selma  and  Meridian,  but  to  Rome,  Atlanta,  Anniston  and 
points  east  of  a  line  drawn  from  Chattanooga  through  Birming- 
ham, Selma  and  Montgomery  to  Pensacola,  the  all  rail  rates  are 
higher  than  the  rail  and  water  rates  by  the  following  differentials. 


Classes  

1 

2 

3 

4 

5 

6 

A 

B 

C 

D 

E 

H 

F 

Differentials  in  cents 

8 

6 

5 

4 

3 

2 

2 

2 

2 

2 

3 

4 

4 

3.  The  lines  regularly  engaged  in  the  transportation  of  traffic 
from  Cincinnati,  Chicago  and  contiguous  territory,  to  Southern 
territory,  are  all  rail.  There  appears  to  be  no  through  water  or 
rail  and  water  line  in  regular  operation  for  the  transportation  of 
traffic  in  the  numbered  classes  between  those  territories.  There 
is  a  line  by  lake  from  Chicago  to  Buffalo  and  from  that  point 
by  rail  or  canal  to  New  York,  which  has  a  direct  effect  on  the 
rail  rates  between  Chicago  and  the  seaboard  —  particularly  the 
rates  on  grain  and  grain  products.  As  to  rates  on  articles  of 
the  higher  classes,  the  influence  of  the  water  competition  does 
not  appear  to  be  so  controlling.   The  rates  from  Chicago  to  New 


IGO 


IJAII.W  A\     I'KOJ'.LEMS 


York  ;iro  the  basis  of  the  rates  from  Central  and  Trunk  Line 
territory  to  the  iS'ortheastern  seaboard,  the  latter  being  pereent- 
ages  of  the  former,  and  the  water  competition  by  lake  and  canal 
thus  {iuUirctli/  exerts  an  intluence  upon  the  rates  to  the  seaboard 
from  as  far  south  as  St.  Louis  and  Cincinnati.  Trallic  may  be 
ti-ansported  by  the  lake  and  canal  or  lake  and  rail  line  from 
Chicago  to  New  York  and  thence  on  the  Atlantic  to  Charleston, 
Savannah  and  other  southern  ports,  and  thence  by  rail  to  interior 
points  in  Southern  territory,  and  there  is  evidence  tending  to 
show  that  in  the  past,  some  shipments  have  been  made  that  way, 
but  mostly  of  grain  and  heavy  articles  such  as  are  embraced  in 
Class  6  of  the  Official  Classification  and  the  lettered  classes  of 
the  Southern  Classification.  The  traffic  shipped  from  Chicago 
by  lake  to  Buffalo  and  from  that  point  by  canal  or  rail  to  New 
York  is  principally  wheat,  corn  and  other  grains,  which  can  be 
transferred  through  an  elevator  at  Buffalo  to  the  canal  boat,  or 
car.  If  the  transportation  be  continued  by  ocean  to  a  southern 
seaport  the  same  process  of  transfer  is  necessary  at  the  seaboard 
and  these  transfers  add  to  the  expense.  .  .  . 

IMerchandise  may  also  be  carried  from  Central  territory  by 
rail  to  Baltimore  and  thence  by  steamer  to  Charleston,  Savannah 
and  other  southern  ports  for  shipment  by  rail  to  the  interior. 
The  class  rates  from  Cincinnati  to  Baltimore  are  : 


Class 

1 

2 

3 

4 

5 

6 

Rates  in  cents  per  100  lbs.     .     .     . 

G2 

53i 

40.^ 

2n 

23 

18i 

4.  The  rates  on  through  shipments  from  Chicago  via  the 
Ohio  river  crossings,  Cincinnati,  Louisville  and  Evansville,  to 
points  in  Southern  territory,  are  not  prorated  the  entire  distance 
but  are  the  sum  of  the  regular  rate  to  the  Ohio,  of  the  roads 
north  of  that  river,  plus  that  of  those  south.  The  shi])nients 
are  almost  invariably,  however,  under  a  through  bill  of  lading, 
quoting  a  total  through  rate  (made  up  as  above  stated)  and 
issued  at  Chicago  by  the  agent  of  the  initial  carrier,  and  the 
goods  when  in  car  loads  are  carried  through  without  transfer  or 


UNREASONABLE  RATES 


161 


"  breaking  bulk  "  at  the  river.  When  shipments  are  in  less  than 
car  loads,  it  is  stated  a  transfer  is  generally  made  at  the  river 
because  of  the  disinclination  of  the  southern  roads  to  pay  for 
the  use  of  cars  of  other  roads.  The  rates  both  north  and  south 
of  the  river  appear  to  be  influenced  to  a  large  extent  by  com- 
petition of  the  various  railway  lines,  and  are  not,  strictly  speak- 
ing, local  rates.  The  rates  of  the  roads  north  of  the  river  are 
lower  per  mile  than  those  of  the  southern  roads,  this  being 
attributed  to  the  greater  volume  of  tonnage  in  the  territory  of 
the  former  than  in  that  of  the  latter.  The  effect  of  prorating 
on  a  mileage  basis  the  rate  from  Chicago  to  points  in  Southern 
territory  would  be  to  advance  the  proportion  of  the  lines  north 
of  the  Ohio  and  to  reduce  the  proportion  of  the  lines  south. 
The  rates  for  transportation  between  Chicago  and  the  Ohio  are 
what  are  known  as  Trunk  Line  rates,  and  are  governed  by  the 
Official  Classification  and  those  for  transportation  between  the 
Ohio  and  Southern  territory  are  governed  by  the  Classification 
of  the  Southern  Railway  &  Steamship  Association.  The  class 
rates  and  distances  by  the  short  lines  from  Chicago  to  the  Ohio 
river  points,  Cincinnati,  Louisville,  and  Evansville,  and  to  Cairo, 
are  shown  below  : 


To 

Distances 

Rates  in  Cents  per  100  Pounds 

1 

2 

3 

4 

5 

6 

Cincinnati    .     .     . 
Louisville     .     .     . 
Evansville    .     .     . 
Cairo 

298  miles 
304      " 
287      " 
364      " 

40 
42 
40 
45 

34 

oC) 
34 
35 

25 

27 
25 
25 

17 
10 
17 
20 

15 
17 
15 
15 

12 
14 
12 
X2 

(The  distances  and  rates  from  Cincinnati  to  points  in  Southern 
territory,  are  hereinbefore  given  in  the  taljles  taken  from  the 
complaints.) 

In  the  tables  of  rates  which  we  have  given,  those  containing 
only  the  six  numbered  classes  are  under  the  Official  Classifica- 
tion, which  is  applied  east  of  Chicago  and  the  Mississippi  and 
north  of  the  Ohio  and  Potomac  rivers,  and  those  embracing  also 


KAIl.W  AN     rUor.LKMS 


lettered  classes  are  iiiHlor  the  C^lassiUcation  of  tlie  Southern  Rail- 
way (S:  Steamshij)  Association,  which  a[)plies  south  of  the  Ohio 
ami  Potomac  and  east  of  the  Mississippi  rivers.  As  above  stated, 
«(rain  and  grain  products  fall  under  Class  G  of  the  Oilicial  Classi- 
lication  ;  in  the  Southern  Classification,  grain  and  its  products 
and  heavy  ficiglit  aie  in  tiie  lettered  classes.  Manufactures  and 
costly  commodities  are  in  the  higlier  classes. 

5.  It  appears  from  tariffs  on  lile  with  the  Conmiission  that 
there  were  in  existence  when  the  Interstate  Commerce  Law  was 
passed  and  up  to  April  17,  1893,  through  rates  fiom  New  York 
via  Cincinnati  to  Chattanooga,  Meridian  and  Birmingham,  less 
than  the  sum  of  the  rates  to  Cincinnati  and  the  rates  thence  on 
to  those  cities,  and  there  are  such  rates  still  in  effect  to  Nashville, 
Memphis,  Mobile,  and  a  number  of  Mississippi  river  points. 

Those  through  rates  to  Chattanooga,  Meridian,  and  Birming- 
ham, were  as  follows : 


1 

2 

3 

4 

5 

6 

114 

98 

86 

73 

60 

49 

The  following  are  the  rates  from  New  York  to  Cincinnati : 

1 

2 

3 

4 

5 

6 

65 

57 

44 

30 

26 

22 

9.  All  the  defendants  (including  the  steamship  lines)  in  the 
Cincinnati  case  are  also  defendants  in  the  Chicago  case  and  are 
for  the  most  part  members  of  the  Southern  Railway  &  Steam- 
ship Association.  The  latter  case,  as  before  stated,  embraces  as 
defendants,  in  addition  to  those  in  the  former,  roads  north  of 
the  Ohio  participating  in  the  transportation  of  traffic  from  Cen- 
tral territory  to  that  river.  None  of  these  are  members  of  the 
Southern  Raihoay  ^  Steamship  Association  except  the  Illinois 
Central  Railroad,  which,  as  we  have  seen,  extends  into  terri- 
tory  south   of    the    Ohio.     This    Association    is    composed  of 


UNREASONABLE   RATES  163 

transportation  lines  (including  the  steamship  lines  from  north- 
eastern cities  to  southern  ports)  engaged  in  the  traffic  of  the 
territory  south  of  the  Potomac  and  Ohio  rivers  and  east  of  the 
Mississippi,  and  the  rates  involved  in  these  cases  from  both  East- 
ern and  Central  to  Southern  territory  are  established  and  main- 
tained under  its  rules  and  regulations.  As  to  the  origin  of  this 
Association,!  it  is  set  forth  in  a  report  of  March  4,  1891,  by 
Commissioner  Wilson  to  the  Cincinnati  Freight  Bureau  (which 
report  was  put  in  evidence),  that  "  subsequent  to  the  close  of 
the  war  and  closely  following  the  reestablishment  of  transpor- 
tation lines  and  through  rates  into  the  South,  there  arose  lively 
competition  between  what  are  known  as  Eastern  Coastwise  Lines 
and  the  Western  lines  which  reached  the  South  from  the  West 
via  Ohio  and  Mississippi  river  gateways.  Each  commenced 
operations  in  the  territory  of  the  other,  and  while  corn  from 
Chicago  was  carried  via  Boston  and  Charleston  to  Atlanta  and 
Chattanooga,  the  manufactured  products  of  the  East  were  not 
infrequently  brought  west  via  Cincinnati  and  Louisville,  or  Chi- 
cago and  Cairo,  for  delivery  to  southern  destinations.  Rate 
wars  were  much  more  fierce  and  frequent  than  they  are  now. 
It  was  to  check  competition  of  this  character  and  to  protect 
the  revenues  of  transportation  lines  generally  that  the  Southern 
Railway  &  Steamship  Association  was  established." 

The  records  of  proceedings  of  the  Association  from  as  far 
back  as  1878  and  up  to  January  14,  1892,  have  been  intro- 
duced in  evidence.  From  these  records,  it  appears  that  in 
1878,  the  roads  leading  south  from  Chicago,  St.  Louis,  Cin- 
cinnati, Louisville  and  other  western  cities  (then  combined  in 
an  organization  known  as  the  "  Green  Line  ")  met  in  conven- 
tion with  the  steamer  lines  from  eastern  cities  and  the  roads 
south  of  the  Potomac  engaged  in  the  transportation  of  eastern 
traffic.  At  this  meeting  its  object  was  disclosed  to  be  "  to  pro- 
tect to  the  Green  Line  Roads  the  business  which  is  peculiar  to 
the  Northwest  and  to  the  Eastern  lines,  the  business  peculiar  to 
their  territory,  and  to  maintain  equal  rates  on  business  common 
to  the  two  sections."    The  Green  Line  rates  appear  to  have  then 

1  Vide,  Chapter  V. 


lu'en  inlviiiu'od  ami  the  riitos  of  the  two  systonis  of  carriers  ad- 
justeil  with  a  view  to  the  transj)«)rlatiou  hy  western  lines  of  wcst- 
fni  /iroJiicts  (that  is,  products  from  territory  west  of  Pittsburg 
ami  east  of  the  Mississippi  and  between  the  Ohio  and  the  lakes) 
and  the  transixntation  by  eastern  lines  of  caatcrn  manufactures. 

I'p  to  ISS;")  this  adjustment  of  rates  appears  to  have  been 
the  means  employed  to  carry  out  the  above-stated  object  of  the 
convention  of  1878.  In  I880  a  division  of  territory  was  estab- 
lished and  a  provision  was  inserted  in  the  agreement  for  that 
year  recpiiring  the  exaction  of  local  rates  by  the  eastern  and 
western  lines,  with  a  view  to  the  protection  to  those  lines, 
respectively  (so  far  as  it  was  possible  in  that  way),  of  what  is 
termed  "  the  revenue  derived  by  them  from  transportation." 

By  a  resolution  adoi)ted  by  the  Executive  Committee  of  the 
Association  in  April,  1885,  it  was  provided  in  connection  with 
the  division  of  territory  above  referred  to  that  "  in  case  eastern 
lines  take  western  business  or  western  lines  take  eastern  busi- 
ness, they  are  to  pay  the  pool  the  entire  revenue  accruing  there- 
on from  points  of  junction  with  Association  roads,  to  be  given 
to  the  lines  composing  the  eastern  or  western  lines  as  the  case 
may  be."  The  agreement  of  that  year  and  those  of  subsequent 
years  up  to  at  least  as  late  a  date  as  that  of  the  agreement 
which  terminated  July  1,  1887,  make  provision  for  such  pool- 
ing or  as  it  is  termed  "  actual  apportionment."  In  those  agree- 
ments two  methods  of  apportionment  are  provided  for  —  namely, 
apportionment  of  tonyiaye  and  apportionment  of  revenue.  Sub- 
sequent agreements  do  not  so  distinctly  provide  for  pooling,  but 
in  the  last  agreement  introduced  in  evidence  (that  of  January 
14,  1892),  it  is  declared  that  "  the  principle  of  an  apportionment 
of  business  subject  to  arbitration  shall  be  recognized  in  the  oper- 
ation of  the  Association  so  far  as  this  can  be  lawfully  done." 
Provision  is,  also,  made  in  that  and  the  last  agreement  entered 
into  since  the  hearing  in  these  cases,  for  raising  a  fund  for  pay- 
ment of  what  are  termed  fines  for  violations  of  the  agreement, 
as  will  hereinafter  appear. 

The  provisions  as  to  division  of  territory  and  the  exaction  of 
local  rates  have  been  carried  forward  in  the  various  agreements 


UNEEASONABLE  KATE8  165 

entered  into  from  1885  to  the  present  time.  The  last  agree- 
ment introduced  in  evidence  is  that  dated,  January  14,  1892, 
and  it  is  substantially  the  same  as  those  of  preceding  years  as 
far  back  as  1885.  Its  clauses  as  to  the  exaction  of  local  rates 
and  division  of  territory  are  as  follows : 

Art.  ir,  sec.  2.  For  the  mutual  protection  of  the  various  interests,  and 
for  the  purpose  of  securing  the  greatest  amount  of  net  revenue  to  all  the 
companies  pai'ties  to  this  agreement,  it  is  agreed  that  what  are  termed 
western  lines  shall  protect  the  revenue  derived  from  transportation  by 
what  are  known  as  eastern  lines,  utuler  the  rates  as  fixed  by  this  Association, 
so  far  as  can  be  done  by  the  exaction  of  local  rates,  and  that  eastern  lines 
shall  in  like  manner  protect  like  revenue  of  western  lines. 

Sec.  3.  That  a  line  from  Buffalo  through  Salamanca,  Pittsburg,  Wheel- 
ing and  Parkersburg,  to  Huntington,  West  Virginia,  be  made  the  dividing 
line  between  eastern  and  western  lines  for  the  territory  hereinafter  outlined. 
That  the  western  lines  shall  not  make  joint  rates  from  points  east  of  that  line 
for  any  points  east  of  a  line  drawn  from  Chattanooga  through  Birmingham, 
Selma  and  Montgomery  to  Pensacola. 

Sec.  4.  The  eastern  lines,  including  the  Richmond  &  Danville  railroad 
via  Strasburg  or  points  east  of  Strasburg,  and  the  East  Tennessee,  Virginia 
&  Georgia  Railway  via  Bristol,  shall  not  make  joint  rates  on  traffic  from 
jjoints  west  of  that  line  (Buffalo,  etc.)  to  any  points  on  or  west  of  a  line 
drawn  from  Chattanooga  through  Athens,  Augusta  and  Macon,  to  Live 
Oak,  Florida. 

Sec.  .5.  The  traffic  from  Buffalo  through  Salamanca,  Pittsburg,  Wheeling 
and  Parkersburg  to  Huntington,  West  Virginia,  and  points  on  that  line,  to 
and  east  of  Chattanooga,  Calera  and  Selma,  shall  be  carried  by  either  the 
eastern  or  western  lines  only  at  such  rates  as  may  be  agreed  upon. 

Sec.  6.  It  is  understood  that  the  eastern  and  western  lines  will  cooj^erate 
in  the  enforcement  of  the  3d  and  -tth  sections  of  this  second  article. 

The  objects  of  the  Association  as  alleged  in  the  preamble 
to  this  agreement,  are  "  the  establishment  and  maintenance  of 
tariffs  of  uniform  rates,  to  prevent  unjust  discrimination  such  as 
necessarily  arises  from  the  irregular  and  fluctuating  rates  which 
inevitably  attend  the  separate  and  independent  action  of  trans- 
portation lines  "  and  the  securing  as  to  business  in  which  the 
carriers  have  a  common  interest  "  a  proper  co-relation  of  rates, 
such  as  will  protect  the  interests  of  competing  markets  without 
unjust  discriminations  in  favor  of  or  against  any  city  or  section." 


h;i;  KAiLw.w    puohlkms 

The  airreement  provides  for  an  annual  convention  of  the  rep- 
resentatives of  the  several  companies,  members  of  the  Associa- 
tion, at  whit'h  each  company  shall  have  one  vote,  two  thirds  of 
the  \vht)le  vote  of  the  members  present  being  required  to  make 
tlie  action  of  the  convention  binding.  At  this  meeting,  among 
other  business  to  be  transacted,  there  are  to  be  elected  a  Presi- 
dent, a  Commissioner,  a  Secretary  and  three  Arbitrators.  The 
members  of  the  Association  are  each  required  to  designate  a 
representative,  authorized  "  to  represent  them  in  all  matters  of 
business  with  the  Association  or  its  members,"  and  the  repre- 
sentatives so  designated  constitute  an  "  Executive  Board."  The 
"  Executive  Board,"  it  is  provided,  "  shall  have  jurisdiction  over 
all  matters  relating  to  traffic  covered  by  the  agreement,  but 
shall  act  only  by  imanimous  consent  of  all  its  members  "  and 
"  in  the  event  of  failure  to  agree,  the  questions  at  issue  shall  be 
settled  by  the  Board  of  Arbitration."  The  "Executive  Board" 
are  authorized  "  at  their  discretion  to  appoint  Rate  Committees 
and  other  subcommittees,  either  of  their  own  number  or  from 
among  the  officers  and  agents  of  the  Companies ;  members  of 
the  Association."  It  is  provided  that,  "  with  a  view  to  a  proper 
relative  adjustment  of  all  rates,  and  especially  a  proper  relative 
adjustment  of  rates  on  similar  articles  from  the  East  and  West 
to  common  territory,  the  Rate  Committees  i>\i2^\\  have  sole  authority 
to  make  all  rates  and  classifications  on  all  traffic  covered  hy  the 
agreement,  subject  to  decision  of  the  Commissioner,  the  Execu- 
tive Board  or  Board  of  Arbitration  in  case  such  Rate  Committees 
cannot  agree."  If  the  "  Rate  Committees  "  fail  or  omit  to  make 
rates,  the  Commissioner  is  given  authority  to  make  such  rates,  so 
that,  it  is  stated,  "  there  shall  be  properly  authenticated  tariffs 
of  rates  on  all  traffic  covered  by  the  agreement."  The  sul> 
committees  appointed  by  the  "  Executive  Board  "  can  "  only  act 
by  unanimous  consent,  and  failing  to  agree,  the  questions  at  issue 
may,  upon  demand  of  any  member,  be  referred  to  the  Executive 
Board  for  action  at  their  next  meeting,  and  such  questions  may 
be  submitted  direct  to  the  Board  of  Arbitration,  when  so  author- 
ized by  a  majority  of  the  Executive  Board.  The  decisions  of 
the  Board  of  Arbitration  are  made  "final  and  conclusive  on  all 


U:N REASONABLE   KATES  167 

questions  which  maybe  submitted  to  them  under  the  agreement  or 
by  consent  of  the  parties."  The  Commissioner  is  Chairman  of  the 
Executive  Board,  and  also  of  the  subcommittees  and  is  author- 
ized to  represent  absent  members  of  subcommittees  as  well  as 
of  the  Executive  Board,  and  "  during  the  interim  between  the 
reference  of  any  matter  of  difference  from  a  subcommittee  to 
the  Executive  Board  and  the  final  determination  of  such  matter," 
he  is  given  authority  ''  if  he  deem  it  a  matter  requiring  prompt 
action,  to  decide  it  temporarily  "  and  his  decision  is  made  "  bind- 
ing on  all  parties  until  reversed  by  the  Executive  Board  or  by 
arbitration ; "  he  is  declared  to  be  "  the  chief  executive  officer 
of  the  Association,  and  as  a  representative  of  its  members,  both 
severally  and  jointly,'"  is  empowered  to  "  act  for  them  in  all 
matters  which  come  within  the  jurisdiction  of  the  Association, 
in  conformity  with  the  requirements  of  the  agreement  and  the 
instructions  of  the  Executive  Board  and  subcommittees,  but  exer- 
cising his  discretion  in  all  cases  which  are  not  provided  for  either 
by  the  agreement  or  by  the  Executive  Board  and  committees  act- 
ing under  its  authority  and  sanction  ;  "  and  he  is  also  authorized 
"  to  reduce  the  rates  when  necessary  to  meet  the  competition  of 
lines  or  roads  not  parties  to  the  agreement  and  at  the  same  time 
to  make  corresponding  reductions  from  other  points  from  which 
relative  rates  are  made,"  and  is  given  "  such  authority  over  the 
traffic  officers  and  their  subordinates  and  over  the  accounting 
departments  of  the  parties  to  the  agreements  as  may  be  neces- 
sary to  enforce  its  terms  relative  to  the  maintenance  of  rates." 
When  rates  have  been  fixed  under  the  provisions  of  the  agree- 
ment by  the  Rate  Committees,  the  Commissioner,  the  Executive 
Board  or  by  arbitration,  there  is  to  be  "  no  reduction  from  such 
rates  without  the  consent  of  the  Commissioner  "  and  in  all  cases 
changes  therein  are  to  be  made  by  the  Rate  Committees  or  the 
Commissioner.  The  agreement  declares  "  that  the  maintenance 
of  rates  as  established  under  the  rules  of  the  Association  is  of 
its  very  essence  and  that  the  parties  thereto  pledge  themselves 
to  require  all  their  connections  to  maintain  such  rates,  and  in 
the  event  of  any  company  or  line,  or  its  connections,  not  mem- 
bers of  the  Association,  failing  to  conform  to  this  obligation,  the 


UiS  iLViLWAi  i'ian;iJ':M8 

other  parties  in  interest  plaJt/c  thcvittclrcis  to  increase  i/irir  pro- 
portion of  t/iron<//i  rates  snfficientli/  to  protect  the  aiithorized  rate 
whenever  required  hji  tlte  Conunissioner^  to  do  so  ;  "  and  furtlier, 
that  it  is  "one  of  tiie  fundamental  i)rinciples  of  the  aujreenient 
that  no  party  thereto  sliall  take  separate  aetion  in  any  matter 
affeeting  the  interests  of  one  or  more  of  the  other  parties,  con- 
trary to  the  spirit  and  intent  of  the  agreement,"  and  tliat  "all 
measures  necessary  to  carry  out  the  purpose  of  the  agreement 
shall  be  taken  joi}U/i/  by  (lie  parties  thereto."  In  cases  of  viola- 
tion of  the  agreement,  the  Hoard  of  Arbitration,  after  hearing,  is 
required  to  "  impose  such  penalties  therefor  as  it  may  deem 
proper  and  necessary  to  secure  the  maintenance  of  the  rates  of 
the  Association."  These  penalties  are  to  be  enforced  by  the  Com- 
missioner, and  "  in  order  to  provide  for  the  prompt  payment  of 
any  tines  that  may  be  assessed  against  any  member  of  the  Asso- 
ciation for  violating  its  rules,  each  company  is  required  to 
deposit  with  the  Connnissioner  an  amount  equivalent  to  five 
dollars  ($5.00)  for  each  mile  of  the  road  operated  by  said  com- 
pany under  the  provisions  of  the  agreement,  or  in  case  a  com- 
pany operates  a  water  line,  five  dollars  (S>5.00)  for  each  mile 
allowed  as  a  pi-orating  distance  in  the  division  of  through  rates 
—  provided  such  amounts  shall  not  exceed  the  sum  of  five  thou- 
sand dollars  (•"r'5000.00)  for  any  one  company."  Of  this  fund 
thus  raised  it  is  provided,  that  "  any  surplus  over  and  above  the 
amount  that  may  he  awarded  hy  the  Board  of  Arbitration  to  indem- 
nify any  members  for  losses  sustained  shall  be  applied  to  the 
[)ayment  of  the  expenses  of  the  Association." 

The  agreement  now  in  force  (made  July  14,  1893,  since  the 
hearings  in  these  cases)  extends  the  territorial  line  commencing 
at  Buffalo  and  terminating  at  Huntington  to  "  Toronto  on  the 
north  shore  of  Lake  Ontario,  through  Lewiston  and  Niagara 
Falls,"  and  provides  that  points  on  this  line  (from  Toronto  to 
Huntington)  "  shall  be  common  to  lines  through  the  eastern  and 
western  gateways,  together  with  such  points  adjacent  thereto 
from  which  the  rates  shall  be  the  same  as  from  the  points  above 
named  "  (points  on  said  line)  "  through  the  gateways  of  Cin- 
cinnati and  Louisville,  the  Rate  Committees  to  agree  upon  the 


UNIIEASUiS'ABLK    ItATES  109 

common  points  adjacent  to  said  line."  To  the  clause  requiring 
members  of  the  Association  "  to  increase  their  proportions  of 
through  rates  sufhciently  to  protect  the  authorized  rates  "  in 
the  event  of  any  company  or  line  or  its  connections  not  mem- 
bers of  the  Association  failing  to  conform  to  the  rates  established 
by  the  Association,  it  adds  the  further  requirement,  that  they 
(members  of  the  Association  interested)  shall  "  ajpply  full  local 
rates  upon  all  traffic  subject  to  the  Associatioii  Agreement  coming 
from  or  going  to  such  offending  lines,  when  required  by  the  Com- 
missioner to  do  so^  The  clause  requiring  the  Board  of  Arbitra- 
tion in  cases  of  violations  of  the  Agreement  by  any  member,  to 
impose  "such  penalties  therefor  as  it  may  deem  proper  and 
necessary  to  secure  the  maintenance  of  the  rates  of  the  Association,''' 
is  altered  so  as  to  read  "  such  penalties  therefor  as  it  may  deem 
proper  and  commensurate  with  the  injuries  iyifiicted  upon  the  Asso- 
ciation and  of  competing  lines  p)arties  to  this  Agreement^  The  other 
material  terms  of  this  agreement  are  substantially  the  same  as 
those  of  the  agreement  of  January  14,  1892,  above  given. 
******** 
10.  At  the  convention  of  the  eastern  and  western  lines  in 
1878,  it  was  announced  by  Mr.  Peck,  General  Manager  of  the 
Southern  Railway  &  Steamship  Association,  that  the  western 
lines  "  concede  that  the  transportation  of  manufactured  articles 
into  the  territory  embraced  by  the  Association  should  be  left  to 
the  eastern  lines  and  undertake  by  p)rohibitory  rates  to  prevent 
such  articles  from  eastern  cities  reaching  Association  points 
over  their  lines."  Accordingly  a  basis  of  rates  was  then  adopted, 
by  which  rates  on  the  western  lines  for  "  articles  peculiar  to  the 
East"  were  to  be  at  least  10  cents  higher  than  the  rates  on  the 
eastern  lines  and  rates  on  eastern  lines  for  "  western  products  " 
were  to  be  at  least  10  cents  higher  than  the  rates  on  western 
lines.  At  the  time  of  this  adjustment  it  appears  that  the  west 
(or  Central  territory)  contributed  "  principally  food  products  in 
the  solid  and  liquid  forms  of  corn,  bacon,  flour,  whiskey,  etc.," 
for  southern  consumption,  while  "manufactured  articles  and 
notions "  came  for  tlie  most  part  from  the  Eastern  Seaboard. 
These  conditions  have,  however,  materially  changed ;  "  the  cen- 


17(1  KAILW.W     I'Kor.LKMS 

tors  of  t\)od  prodiu'tion  have  niovod  westward "  and  Central 
territory  has  eiiij^a^ed  niiu'li  more  extensively  in  manufaeturing 
enterprises.  In  the  Annual  Kcport  made  to  the  Soutliern  JIail-- 
way  »S:  Steamship  Assoeiation  by  its  Connnissioner,  'Uily  (5, 1889, 
he  says:  "  Formerly,  agrieultnral  ])roduets  eonstituted  a  large 
excess  of  the  western  business,  hut  the  proportion  of  miscella- 
neous commodities  —  trairu;  formerly  from  the  East — is  steadily 
growing  from  the  West.  Especially  is  this  true  in  all  manufac- 
tured articles  of  wood,  such  as  furniture,  wagons,  carriages  of 
all  kinds,  etc.,  and  manufactures  from  the  cheap  grades  of  iron 
from  the  South,  such  as  stoves,  agricultural  implements,  etc." 
Central  territory  has  also  entered  upon  the  manufacture  on  a 
large  scale  and  shipment  South  of  boots,  shoes,  clothing,  sad- 
dlery, harness  and  other  articles  of  general  merchandise.  It  is 
estimated  that  manufactures  in  Central  territory  have  increased 
100  per  cent  in  twenty  years. 

These  manufactured  articles  are  shipped  south  from  Central 
territory  under  the  rates  applied  to  the  numbered  classes  in  the 
Southern  Railway  &  Steamship  Association  Classification,  and 
bagging,  ties,  grain  (and  its  products  including  liquors)  and 
packing-house  products  are  shipped  under  the  rates  applied  to 
the  lettered  classes.  The  testimony  is  to  the  effect  that  articles 
falling  within  the  lettered  classes  are  of  more  general  consump- 
tion in  the  Southern  territory  than  those  in  the  numbered  classes. 
No  reliable  data  is  furnished  as  to  the  proportion  the  south- 
bound tonnage  of  the  former  bears  to  that  of  the  latter,  but  it 
appears  to  be  much  larger.  In  their  reports  on  file  with  the  Com- 
mission the  railways  do  not  give  separately  the  south-bound  and 
north-bound  tonnage,  but  it  appears  that  boots,  shoes,  clothing, 
wooden  ware,  furniture,  saddlery,  harness,  groceries  and  "every- 
thing that  goes  under  the  head  of  general  merchandise  "  con- 
stituted in  1891  not  quite  25  per  cent  of  the  total  south-bound 
tonnage  of  the  Cincinnati,  New  Orleans  &  Texas  Pacific  Road, 
and  that  bagging,  ties,  grain  (and  its  products)  and  packing-house 
products,  "  covered  the  bulk  of  the  business  south-bound." 

Articles  in  the  numbered  (dasses  manufactured  in  Wisconsin, 
Michigan,  Illinois,  Indiana  and  Ohio,  are  sold  as  far  east  as 


UNKEASONABLE  RATES  171 

Rochester  and  Albany,  New  York,  as  far  west  as  the  Pacific 
coast,  and  to  a  greater  or  less  extent  over  the  South  from  Texas 
and  Arkansas  to  the  Virginias.  The  testimony  tends  to  show 
that  in  the  Southeast,  in  the  territory  embracing  Alabama,  East 
Tennessee,  Florida,  Georgia,  the  Carolinas  and  Virginias,  and 
particularly  at  points  near  the  Atlantic  coast,  the  merchants 
and  manufacturers  of  Central  territory  meet  with  strong  com- 
petition in  the  sale  of  these  goods  from  New  York  and  the 
other  Eastern  Seaboard  cities.  They  do  not  appear  to  be  driven 
out  of  this  territory  altogether  by  this  competition,  but  their 
business  and  the  profit  on  it  are  not  so  great  as  a  general  rule 
as  in  other  markets  reached  by  them.  In  some  instances  they 
are  required  by  their  customers  to  "  equalize  the  rates,"  or  in 
other  words,  to  refund  the  excess  of  the  rates  on  their  goods 
over  those  on  goods  of  the  same  kind  and  class  from  Eastern 
Seaboard  territory. 

11.  L.  R.  Brockenborough,  General  Freight  Agent  of  the 
Chicago  &  Eastern  Illinois  Railway  Company  (whose  road  runs 
from  Chicago  to  the  Ohio  at  Evansville)  stated  that  "  his  im- 
pression (is)  that  the  general  impression  seems  to  be  that  the 
rates  from  the  Central  territory  into  Southern  territory  are  out 
of  line  with  those  from  the  seaboard,"  and  that  his  road  "would 
be  willing  to  reduce  its  rate  to  bring  the  through  rate  in  line 
with  the  New  York  rate."  John  C.  Gault,  General  Manager 
of  the  Queen  &  Crescent  System  (in  which  are  defendants,  the 
Cincinnati,  New  Orleans  &  Texas  Pacific  and  the  Alabama 
Great  Southern  Companies)  stated  that  he  "  always  thought 
rates  from  Chicago  to  southern  points  on  higher  classes  ought 
to  be  the  same  as  those  from  Boston  and  New  York ; "  and  that 
this  "  would  not  harm  New  York  and  hardly  be  enough  in 
favor  of  the  west."  He  also,  under  date  of  August  14,  1888, 
wrote  to  the  Commissioner  of  the  Chicago  Board  of  Trade,  that 
"  the  roads  interested  in  Chicago  business  ought  in  my  (his) 
judgment  to  take  such  action  as  is  necessary  to  insure  a  reduc- 
tion of  the  rates  "  from  the  West.  M.  C.  Markham,  Assistant 
Traflfic  Manager  of  the  Illinois  Central  R.R.  Co.,  testified  that  he 
had  made  an  effort  to  have  the  Southern  Railway  &  Steamship 


IVi  i;aii.\\a\    1'K(»i;lkms 

AssDciatiDn  ivdiu'c  the  rales  from  Central  territory,  and  said, 
"  Looking  at  the  disparity  between  the  rates  from  Eastern  and 
Central  territories,  it  appears  there  might  be  in  them  an  ele- 
ment of  unfairness  to  the  latter.  If  it  is  true,  that  rates  from 
Eastern  territory  into  the  southeast  were  made  on  account  of 
water  competition  along  the  Atlantic  seaboard,  and  if  all  rail 
lines  leading  from  the  East  into  that  territory  can  afford  to 
carry  the  goods  for  those  rates  made  by  water  lines,  then  the 
western  through  lines  could  afford  to  carry  for  the  same  rates  a 
h'ss  distance,  provided  all  conditions  governing  the  matter  were 
equal."  S.  R.  Knott,  Trallic  iNlanagcr  of  the  Louisville  &  Nash- 
ville Road  in  a  letter  to  G.  J.  Grammar  of  April  14,  1890, 
wrote  that  "-While  the  adjustment  may  he  riufair,  as  we  think 
it  is,  yet  it  can  hardly  be  said  to  be  arbitrary  or  wholly  unrea- 
sonable ; "  and  that  his  company,  "  together  with  other  lines 
interested  in  western  trafhc,  then  members  of  the  Southern 
Railway  &  Steamship  Association,  urged  a  modification  of  the 
difference  "  (between  eastern  and  western  rates)  "  and  succeeded 
in  having  the  matter  brought,  under  the  rules  of  the  Association, 
before  the  Board  of  Arbitration;"  and  that  "the  question  was 
fully  presented  from  both  sides  of  the  case  and  the  decision  of 
the  Board  at  that  time  (May,  1888)  was  that  the  best  protection 
of  all  interests  did  not  warrant  the  change  in  the  adjustment  of 
rates  which  we,  with  the  other  western  lines,  had  requested, 
that  is,  changing  the  adjustment  from  Ohio  river  points  and 
points  north  as  compared  with  the  rates  from  eastern  cities." 
B.  E.  Hand,  Assistant  General  Freight  Agent  of  the  Michigan 
Central  Road,  stated  that  he  had  made  "  repeated  efforts  with 
railroads  operating  in  Southern  territory  for  a  reduction  of  rates 
on  manufactures  from  the  West  to  the  Southeast."  G.  J.  Gram- 
mar, Chairman  of  the  Central  Traffic  Association's  Committee 
on  relations  with  southern  roads,  in  a  letter  to  N.  G.  Iglehart, 
of  April  2,  1890,  says,  "  All  our  efforts  thus  far  have  been  un- 
availing to  get  the  southern  roads  to  more  justly  equalize  the 
rates.  You  doubtless  understand  southern  roads'  rates  from  the 
Ohio  river  are  arbitrary,  their  rates  on  all  classes  south-bound 
being  from  50  to  100  per  cent  greater  per  mile  than  by  lines 


I 


UNREASONABLE  KATES  173 

north  of  the  Rivier  on  similar  traffic."  In  a  letter,  dated  April 
8,  1890,  to  S.  R.  Knott,  he  says,  "The  injustice  of  the  present 
basis  of  rates  "  (from  the  Ohio)  "  must  of  necessity  be  apparent." 

Conclusio7is 

The  principal  charge  in  both  cases  it  is  stated  is  based  on  the 
first  paragraph  of  section  3  of  the  Act  to  IJegulate  Commerce, 
which  declares, 

"  That  it  shall  be  unlawful  for  any  common  carrier  subject 
to  the  provisions  of  this  Act  to  make  or  give  any  undue  or  un- 
reasonable preference  or  advantage  to  any  particular  person, 
company,  firm,  corporation,  or  localit}^  or  any  particular  de- 
scription of  traffic,  in  any  respect  whatsoever,  or  to  subject  any 
person,  company,  firm,  corporation  or  locality,  or  any  particular 
description  of  traffic,  to  any  undue  or  unreasonable  prejudice  or 
disadvantage  in  any  respect  whatsoever." 

The  specific  ground  of  complaint  under  this  charge  is  in 
substance  that  the  rates  on  manufactured  goods  from  Eastern 
Seaboard  territory  to  Southern  territory,  and  those  on  the  same 
classes  of  goods  from  Central  territory  to  Southern  territory,  are 
so  fixed  or  adjusted  with  reference  to  each  other  as  to  give  to 
merchants  and  manufacturers  in  Eastern  Seaboard  territory  an 
"  undue  or  unreasonable  preference  or  advantage  "  over  those  in 
Central  territory,  and  consequently  subject  the  latter  to  "an  undue 
or  unreasonable  prejudice  or  disadvantage  "  with  respect  to  the 
former,  when  they  meet  in  competition  in  the  southern  markets. 

The  reasonableness  in  themselves  of  the  rates  from  Central 
territory  is  a  matter  material  to  the  issue  raised  by  the  charge 
in  both  cases,  that  the  relation  between  those  rates  and  the 
eastern  rates  is  unjustly  prejudicial  to  Central  territory,  and  the 
question  is  directly  presented  in  the  Chicago  case  by  the  allega- 
tion that  the  rates  from  Cincinnati  and  other  Ohio  river  cross- 
ings to  Southern  territory  are  "  unreasonably  high."  Wliere 
the  reasonableness  of  rates  is  in  question,  comparison  may  be 
made,  not  only  with  rates  on  another  line  of  the  same  carrier, 
but  also  with  those  on  the  lines  of  other  and  distinct  carriers  — 


i;ail\\  A\    ruor.LKMs 


the  valiu>  of  the  comparison  being  (lependent«in  all  cases  upon 
the  (/<;(//•('('  of  similarity  of  circumstances  and  conditions  attend- 
ing the  ti-ansportation  for  which  the  rates  compared  are  charged. 
It  appears  from  the  tabular  statements  in  our  findings  of  fact, 
«rivin!>"  all  rail  distances  and  class  rates  from  Cincinnati  and 
Chicago  in  Central  territory  and  from  New  York  and  other 
northeastern  cities,  to  points  in  Southern  territory,  that  on  a 
)ti/lra</i'  basis  the  rates  from  the  former  (particularly,  those  on 
tlu'  higher  or  numbered  classes)  are  largely  in  excess  of  those 
from  the  latter.  For  the  purpose  of  illustration  the  following 
table  is  given,  which  shows  the  current  rates  on  goods  of  Class 
1  from  Cincinnati  and  Chicago  and  from  New  York  to  points 
named  in  Southern  territory,  and  what  the  rates  from  Cincinnati 
and  Chicago  would  be  on  the  basis  of  the  (all  rail)  mileage  rates 
from  New  York  : 


Current  Class  1  Kates 

Rates  on  Basis  op 

Mileage  Rates  from 

New  York 

To 

From 
Cincinnati 

From 
Chicago 

From 
New  York 

From 
Cincinnati 

From 
Chicago 

Knoxville 

Chattanooga 

Home 

Atlanta 

Meridian 

Birmingham 

Anniston 

Selraa 

76 
76 
107 
107 
122 
89 
107 
108 

116 
116 
147 
147 
134 
119 
147 
138 

100 
114 
114 
114 
124 
114 
114 
114 

39 
45 
51 
61 
62 
54 
57 
62 

78 
79 
83 
95 
71 
75 
85 
78 

The  excess  of  the  Class  1  rates  in  the  above  table  from  Cin- 
cinnati and  Chicago  over  the  New  York  rates  from  a  mileage 
standpoint  is,  as  follows : 


To 

From 

From 

To 

From 

From 

Cincinnati 

Chicago 

Cincinnati 

Chicago 

Knoxville .     . 

37 

38 

Meridian .     . 

60 

63 

Chattanooga  . 

31 

37 

Birmingham 

35 

44 

Rome  .     . 

56 

64 

Anniston 

50 

62 

Atlanta     .     . 

46 

52 

Selma      .     . 

46 

60 

UNREASONABLE  RATES  175 

As  to  the  other  numbered  classes  and  the  other  northeastern 
cities,  the  relation  or  difference  between  the  two  sets  of  rates 
is  to  a  large  extent  substantially  the  same  as  shown  in  the 
aJ3ove  tables. 

Many  striking  disparities  in  rates  will  be  observed  on  an  in- 
spection of  the  tabular  statements  of  rates  and  distances  in  our 
findings  of  facts,  and  particularly,  in  the  Class  1  rates  from 
Chicago,  on  the  one  hand,  and  Boston  and  New  York,  on  the 
other  —  the  latter  two  cities  being  given  for  the  most  part  the 
same  rates.  For  example,  while  the  distance  from  Chicago  to 
Chattanooga  is  595  miles,  and  from  Boston  and  New  York,  re- 
spectively, 1060  and  847  miles,  the  rate  from  Chicago  is  116  cents 
and  from  Boston  and  New  York,  114  cents,  and  while  the  dis- 
tance from  Chicago  to  Meridian,  Miss.,  is  723  miles  and  from 
Boston  and  New  York,  respectively,  1355  and  1142  miles,  the 
rate  from  Chicago  is  134  cents,  and  from  Boston  and  New  York, 
124  cents.  Under  the  rate  last  named,  a  shipper  of  a  car  load  of 
25000  pounds,  of  Class  1  goods  from  Boston  and  New  York  to 
Meridian  would  pay  $25.00  less  than  a  shipper  of  a  like  car  load 
from  Chicago,  notwithstanding  the  relative  proximity  of  the 
latter  city  to  the  common  point  of  destination.  (Up  to  March 
16,  1894,  the  rate  from  New  York  and  Boston  to  Meridian  was 
114  cents.)  Further  examples  of  similar  import  might  be  taken 
from  the  tabular  statements  of  rates  and  distances,  but  the 
above  are  deemed  sufficient. 

******** 

The  plea  that  the  all  rail  lines  from  northeastern  cities  to 
Southern  territory  are  subjected  to  water  competition  via  the 
Atlantic  and  that  this  competition  has  naturally  a  controlling 
influence  on  their  rates,  is  sustained  by  the  proof. 

The  defendants  in  their  proof  have  furnished  a  measure  or 
given  their  estimate  of  the  influence  of  the  water  competition 
from  the  northeastern  cities  to  the  southeastern  ports.  It  is  that, 
while  the  distance  by  water  from  New  York  to  Charleston  and 
Savannah  is  approximately  750  miles,  the  rates  by  the  steamer 
lines  are  made  on  the  basis  of  what  is  termed  a  "  constructive 


7<) 


1;A1I.\\A^     I'lJOl'.LKMS 


miloage  "  of  *J;>()  inik's  to  ("luiilestoii  ;ind  -;")()  miles  to  Savannah, 
or,  in  other  words,  the  water  rate  from  New  York  to  Charleston  is 
ciiiial  to  the  rail  rate  for  230  miles  by  land,  and  to  Savannah,  to 
the  rail  rate  for  '250  miles  by  land.  These  "  construetive  mile- 
ages"" [ilus  lilt'  actual  distances  by  rail  from  those  ports  to  inte- 
rior points  in  Southern  teri'itor}'  are  called  the  "  rate-making 
mileages,"  upon  which  the  combined  rail  and  water  rates  from 
New  York  to  the  interior  i)oints  are  based.  As  is  claimed  by 
defendants,  the  proof  tends  to  show  that  the  rail  and  water  rates 
regulate  the  all  rail  rates,  and  the  rail  and  water  and  all  rail 
rates  are  the  same  to  all  the  points  named  in  Southern  territory 
except  Rome,  Anniston  and  Atlanta,  to  which  the  all  rail  rates 
are  higher  than  the  rail  and  water  by  certain  differentials  rang- 
ing from  2  to  8  cents  per  100  pounds  as  appears  from  our  find- 
ings of  facts.  A  comparison  of  these  "  rate-making  mileages  " 
(rail  and  water)  with  the  all  rail  distances  from  New  York  to 
southern  points  may  be  instructive  as  indicating  the  estimate  hy 
the  roads  of  the  extent  of  the  influence  of  water  competition  on 
the  eastern  rates.  Those  "mileages"  {via  Charleston)  and  all  rail 
distances  are  given  in  the  following  table  : 


From  New  York 

To 

All  Kail  Distances 

"  Rate-making  Mileages  "  via 
Charleston— Rail  and  Water 

Knoxville 

Chattanooga 

Rome 

Atlanta 

Meridian 

Birmingham 

Anniston 

Selma 

735  miles 
847       " 
925      " 
870      " 

1142      " 
990      " 
949      " 

1080      " 

763  miles 
670      " 
597      " 
5.38      " 
901      " 
705      " 
642      " 
791      " 

From  the  following  table  a  comparison  may  be  made  of  the 
"  rate-making  mileages,"  rail  and  water,  from  New  York  to 
southern  points,  with  the  actual  all  rail  distances  from  Cin- 
cinnati and  Chicago  to  the  same. 


UNREASOXABLE   RATES 


177 


From  New  Yokk 

From  Chicago 

From  Cincinnati 

To 

"  Rate-making  ]Mile- 
ages  "  via  Charleston 
—  Rail  and  Water 

All  Rail  Distances 

All  Kail  Distances 

Knoxville     .... 

763  miles 

560  miles 

290  miles 

Chattanooga 
Rome       .     . 

676      " 
597      " 

595      " 
673       " 

335      " 

413      " 

Atlanta   .     . 

538      " 

733      " 

475      " 

Meridian 

901      " 

723      " 

630      " 

Birmingham 

705      " 

652      " 

478      " 

Anniston 

642      " 

715      " 

476      " 

Selma      .     . 

791      " 

746      " 

598      " 

It  will  be  seen  from  the  above  table  that  the  "  rate-making 
mileages"  from  New  York,  which  are  arrived  at  hy  an  alloivance 
for  the  estimated  effect  of  water  competitioii  —  the  estimate  being 
that  of  the  defendants,  are  greater  than  the  actual  all-rail  distances 
from  Chicago,  as  follows:  to  Knoxville,  by  203  miles  ;  to  Chatta- 
nooga, by  81  miles;  to  Meridian,  by  178  miles  ;  to  Birmingham, 
by  53  miles;  and  to  Selma,  by  45  miles.  They  are  less  to  Rome 
by  76  miles,  to  Anniston  by  73  miles  and  to  Atlanta  by  195 
miles.  They  are  in  every  instance  much  greater  than  the 
distances  by  rail  from  Cincinnati.  The  all  rail  distances  from 
Cincinnati  and  Chicago  are  the  following  percentages  of  the 
"rate-making  mileage"  from  New  York: 


To 

From  Cincinnati 

From  Chicago 

Knoxville 

Chattanooga 

Rome 

38% 

50 

69 

88 

70 

68 

74 

80 

73% 
88 
112 

Atlanta 

136 

Meridian 

Birmingham 

Anniston 

Selma 

80 

92 

111 

94 

On  the  above  basis  —  that  is,  making  the  rates  from  Cincin- 
nati and  Chicago  the  same  percentages  of  the  current  New  York 


ITS  KAIL WAV    I'KOr.LEMS 

rates  as  the  distances  by  rail  from  the  former  cities  are  of  the 
"  rate-makiiii^  mileau^es  "  from  the  hitter  —  the  rates  from  Cin- 
c'iiinali  will  br  materially  less  than  they  now  are  on  the  nu7n- 
bvretl  classes  in  all  cases  and  also  from  Chicago,  except  those  to 
Atlanta  and  (Jiose  on  classes  4-i  ^^i  <^>^^^  ^  io  Birmingham  and  Jf. 
and  0  to  Chattanooga.  They  will  also  be  less  to  a  large,  but 
not  so  great  an  extent,  on  the  lettered  classes.  It  thus  appears 
that,  giving  full  weight  to  the  claim  of  defendants  that  water 
competition  via  the  Atlantic  necessitates  rates  from  the  East 
relatively  lower  than  those  from  the  West  and  as  a  consequence 
rates  from  the  West  relatively  higher  than  those  from  the  L^ast, 
it  does  not  with  the  exceptions  above  named  account  for  or 
justify  the  existing  disparity  between  them. 

The  evidence  shows  that  the  rates  from  Eastern  Seaboard  and 
Central  territories,  respectively,  were  adjusted  with  reference  to 
each  other  by  mutual  agreement  between  the  eastern  and  west- 
ern carriers  through  the  medium  of  the  Southern  Railway  & 
Steamship  Association  and  that  in  making  this  adjustment  other 
considerations  than  those  of  water  competition,  or  other  dissimi- 
larity of  circumstances  or  condition  affecting  transportation,  had 
a  controlling  influence.  It  appears  that  lively  competition  result- 
ing in  rate  wars  had  arisen  between  the  eastern  and  western  lines 
in  the  transportation  into  the  South  by  each  of  traffic  from  terri- 
tory claimed  by  the  other.  This  led  to  the  convention  in  1878 
(referred  to  in  our  statement  of  facts)  of  the  carriers  interested, 
the  object  of  which  was  stated  to  be  the  establishment  of  such 
a  co-relation  of  rates  as  would  "  protect  to  the  eastern  lines  the 
business  peculiar  to  their  territory/  "  and  to  the  western  lines  (then 
known  as  the  "  Green  Line  Roads  ")  the  business  relating  to 
"  their  peculiar  commodities  " —  in  other  words,  to  secure  to  the 
eastern  lines  the  transportation  of  "  articles  manufactured  in  the 
East,  and  in  other  countries  and  imported  into  eastern  cities, 
embraced  under  the  general  terms  of  dry  goods,  groceries,  crock- 
ery and  hardware  "  and  classified  for  the  most  part  under  the 
first  four  of  the  numbered  classes,  and  to  the  western  lines, 
the  transportation  of  "  articles  of  western  produce,  comprising 
the  produce  of  animals  and  the  field"  and  embraced  principally 


UNREASONABLE  EATES  179 

in  the  lettered  classes.  The  only  way  to  accomplish  this  result 
through  the  agency  of  rate  adjustment  or  manipulation  was  to 
place  relatively  high  rates  on  manufactured  articles  and  rel- 
atively low  rates  on  food  products  shipped  from  or  via  the  West, 
and  vice  versa,  as  to  such  shipments  from  or  via  the  East ;  and 
at  the  opening  of  the  convention,  Mr.  Peck,  the  General  Mana- 
ger of  the  Association,  being  called  on  by  the  chairman  to  state 
its  object,  said  among  other  things,  that  the  western  lines  con- 
ceded that  the  transportation  of  manufactured  articles  "  into  the 
territory  embraced  by  the  Southern  Railway  &  Steamship  Asso- 
ciation should  be  left  to  the  eastern  lines,  and  undertake  hy  'pro- 
hibitory rates  to  prevent  such  articles  from  eastern  cities  reaching 
the  Association  points  over  their  lines.''^  A  basis  of  rates,  at  least 
ten  cents  higher  by  the  eastern  lines  than  the  western  on  west- 
ern products  and  at  least  ten  cents  higher  by  the  western  lines 
than  the  eastern  on  "  articles  peculiar  to  the  East,"  was  then 
adopted,  with  a  view  to  effecting  the  announced  object  of  the 
convention.  It  is  manifest  that  at  that  time  the  influence  of 
water  competition  on  the  eastern  rates  was  not  regarded  as  a 
controlling  factor  in  determining  what  the  excess  of  the  western 
should  be  over  the  eastern  rates  on  manufactured  goods  and 
the  reasonableness  in  themselves  of  those  western  rates  was  a 
matter  of  secondary,  if  any,  consideration.  While  there  have 
since  been  fluctuations  and  changes  in  the  two  sets  of  rates,  the 
principle  regulating  their  co-relation  or  adjustment  with  refer- 
ence to  each  other  has  remained  practically  the  same  to  the 
present  time.  The  leading  idea  of  securing  to  each  system  of 
carriers  the  traffic  of  what  is  termed  its  territory  by  the  adjust- 
ment and  manipulation  of  rates  and  in  other  ways,  is  promi- 
nent throughout  all  the  Association  Agreements.  In  the  last, 
as  in  those  preceding,  it  distinctly  appears,  and  the  provisions, 
among  others,  for  a  geographical  division  of  territory,  for  the 
exaction  of  local  rates  to  protect  Association  rates,  and  for 
penalties,  all  look  to  this  end.  It  is,  also,  apparent  on  an  inspec- 
tion of  the  current  rates  themselves,  which  disclose  the  broad 
distinction  made  between  the  rates  on  the  numbered  and  lettered 
classes  —  the  relation  between  the  two  sets  of  rates  on  the  former 


ISO  i;aii,\\av  pia)  I '.I.K.MS 

briiii;  ailvantrtgeoiis  to  tlu'  I^;ist,  wliile  that  between  the  rates 
on  the  hitliT  aro  not  nearly  so  favorable  to  that  territory.  As  a 
fair  illustration,  the  rates  from  Chii-ago  to  Chattanooga  on  the 
lettered  elasses  are  from  seventy  to  eighty-nine  per  cent  of  the 
New  York  rates,  while  on  the  numbered  classes  1,  2  and  3,  — 
they  are  respectively,  102,  101  and  U5  per  cent.  It  is  true,  rates 
upon  the  heavy  and  cheap  articles  in  the  lettered  classes  should 
be  less  than  rates  upon  the  comparatively  light  weighted  and 
valuable  articles  in  the  numbered  classes,  because,  as  respects 
the  latter,  the  value  of  the  service  to  the  shipper  and  the  risk  to 
the  carrier  are  greater.  These  considerations,  however,  apply 
equally  to  shipments  of  traflic  from  both  territories,  and  do 
not,  therefore,  justify  or  account  for  the  distinction  to  which  we 
have  just  adverted.  The  fact,  that  the  tonnage  of  traffic  in  the 
lettered  classes  from  Central  territory  is  larger  than  of  traffic 
in  the  numbered  classes,  and  doubtless,  also,  larger  than  the 
tonnage  of  traffic  in  the  lettered  classes  from  Eastern  territory 
is  not  in  our  opinion  sufficient  to  authorize  or  account  for  the 
great  difference  apparent  on  the  face  of  the  tariffs.  This  differ- 
ence finds  a  natural  solution  in  the  avowed  purposes  of  the 
Southern  Railway  &  Steamship  Association  to  secure,  by  an 
adjustment  of  rates  calculated  to  bring  about  that  result,  the 
transportation  by  the  eastern  lines  of  goods  in  the  numbered 
classes  from  the  territory  set  apart  as  theirs  and  to  the  western 
lines  the  transportation  of  traffic  in  the  lettered  classes  from  the 
territory  apportioned  to  them. 

The  relation  established  between  the  eastern  and  western  rates 
in  1878  was,  doubtless,  suggested  by,  and  found  a  plausible  pre- 
text in,  the  fact  that  at  that  time  the  West  contributed  princi- 
pally articles  in  the  lettered  classes  for  southern  consumption, 
while  goods  in  the  numbered  classes  came  for  the  most  part 
from  the  East.  The  situation  in  this  respect  has,  however,  as 
appears  from  our  statement  of  facts,  materially  changed,  and  it 
is  estimated  that  the  manufacture  in  Central  territory  of  goods 
in  the  numbered  classes  has  increased  100  per  cent  in  twenty 
years.  If,  therefore,  the  condition  as  to  manufactures  and 
products  in   1878  could  have  been  set  up  in  justification  of 


UNREASONABLE   KATES  181 

the  adjustment  of  rates  then  made,  that  justification  no  longer 
exists  and  the  change  in  those  conditions  is  an  argument  in  favor 
of  a  corresponding  cliange  in  the  rate  adjustment.  We  are  of  opin- 
ion, however,  that  the  situation  in  1878  in  the  respect  named  con- 
stituted no  justification.  The  tendency  of  such  an  adjustment 
of  rates  was  to  encourage  and  build  up  manufactures  in  the 
East  and  discourage  and  retard  them  in  the  West  and  thus  main- 
tain the  status  quo.  In  this  connection  may  be  noticed  tiie  claim 
of  the  defendants,  that  the  great  growth  in  Central  territory  of 
the  manufacture  and  sale  of  articles  in  the  numbered  classes 
shows  that  the  rates  in  question  to  Southern  territory  have  not 
been  prejudicial  to  manufacturers  and  shippers  in  Central  terri- 
tory. This  does  not  appear  to  be  a  legitimate  inference  in  view 
of  the  fact  tliat  Central  territory  is  not  limited  to  Southern  ter- 
ritory as  a  market,  but  also  sells  its  manufactures  and  products 
as  far  west  as  the  Pacific  coast,  as  far  east  as  Rochester  and 
Albany,  and  in  the  Southwest.  The  proof  is  that  the  shipments 
of  goods  in  the  numbered  classes  from  Central  to  Southern  ter- 
ritory (the  Southeast)  are  small  in  comparison  with  those  of  goods 
in  the  lettered  classes  and  this  may  be,  in  part  at  least,  due  to 
the  rate  adjustment  complained  of.  If  the  fact,  that  one  section 
is  a  large  producer  and  another  a  small  producer  of  certain 
classes  of  traffic,  is  a  factor  to  be  considered  in  fixing  rates  from 
them  to  a  common  market,  which  is  not  conceded,  it  would  seem 
that  it  should  operate  to  give  more  favorable  rates  to  the  latter 
witli  a  view  of  stimulating  and  increasing  its  production.  Con- 
siderations of  this  character,  however,  if  they  are  to  be  allowed 
any  weight  by  carriers  in  fixing  rates  from  rival  territories, 
should  always  be  held  in  strict  subordination  to  the  invariable 
rule,  that  in  all  cases  rates  shall  be  reasonable  in  themselves. 
No  departure  from  this  rule  can  be  justified  on  the  ground,  that 
it  is  necessary  in  order  to  maintain  existing  trade  relations,  or 
to  "  protect  the  interests  of  competing  markets,"  or  to  ''  equalize 
commercial  conditions,"  or  to  secure  to  carriers  traffic  from  certain 
territory  assumed  to  be  exclusively  theirs.  It  is  not  the  duty  of 
carriers,  nor  is  it  proper,  that  they  undertake  by  adjustment  of 
rates  or  otherwise  to  impair  or  neutralize  the  natural  connneicial 


IS'J  RAILWAY    I'KOr.LKIMS 

aUvaiituijfes  resulting  from  location  or  other  favorable  condition 
of  one  territory  in  cnder  to  put  another  territory  on  an  equal 
footing  w  ilh  it  in  a  coninion  market.  Each  locality  competing 
with  others  in  a  eonunon  market  is  entitled  to  reasonable  and  just 
rates  at  the  hands  of  the  carriers  serving  it  and  to  the  benelit  of 
all  its  natural  advantages,  'lames  i^  M.  Buggy  Co.  v.  Cincinnati 
y.  0.  .)'•  T.  P.  li.  Co.,  y  Inters.  Com.  Kep.  682,  4  I.  C.  C.  Rep.  744  ; 
Raworth  v.  Northern  Fac.  Jl.  Co.,  3  Inters.  Com.  Rep.  857,  5  I.  C. 
C.  Rep.  234;  Eau  Claire  Board  of  Trade  v.  Chicago,  M.^  St.  P. 
R.  Co.,  4  Inters.  Com.  Rep.  65,  5  I.  C.  C.  Rep.  264;  Chamber  of 
Commerce  of  Minneapolis  v.  Great  Northern  R.  Co.,  4  Inters.  Com. 
Rep.  230,  5  I.  C.  C.  Rep.  571.  If  this  result  in  prejudice  to  one 
and  advantage  to  another,  it  is  not  the  undue  prejudice  or  advan- 
tage forbidden  by  the  statute,  but  flows  naturally  from  conditions 
beyond  the  legitimate  sphere  of  legal  or  other  regidation.  "  Carriers," 
moreover,  "  in  making  rates  cannot  arrange  them  from  an  exclu- 
sive regard  to  their  own  interests,  but  must  respect  the  interests 
of  those  who  may  have  occasion  to  employ  their  services,  and 
subordinate  their  own  interests  to  the  rules  of  relative  equality  ayid 
justice  which  the  Act  prescribes.''"'  (Second  Annual  Report.)  The 
provision  in  the  Association  Agreements  for  the  "  exactio7i  of 
local  rates"  to  "protect"  to  each  system  of  carriers  the  revenue 
which  would  come  to  them,  respectively,  under  a  strict  enforce- 
ment of  Association  rates  and  under  the  division  of  territory 
between  them,  is  stated  to  be  for  "  the  purpose,"  among  others, 
"  of  securing  the  greatest  amount  of  net  revenue  to  all  the  com- 
panies parties  to  the  agreement."  This  is,  doubtless,  the  con- 
trolling consideration.  The  interests  of  the  public,  certainly, 
cannot  be  subserved  in  this  way.  The  division  of  territory  is 
wholly  without  warrant  in  law  and  is  practically  a  denial  to 
shippers  in  such  territory  of  the  right  to  ship  their  goods  or 
produce  to  market  by  the  line  or  route  they  may  prefer.  The 
exaction  of  higher  rates  on  certain  articles  shipped  from  Central 
to  Southern  territory  than  would  otherivise  prevail,  for  the  pur- 
pose of  securing  to  eastern  lines  the  transportation  of  that  traffic 
from  territory  apportioned  to  them,  is  manifestly  unlawful,  and 
results  in  injury  to  both  Central  and  Southern  territory. 


UNKEASONABLE  RATES 


183 


Rates  per  Ton  per  Mile  on  the  Numbered  Classes  from  Chicago 
TO  Cincinnati 


1 

2 

3 

4 

5 

6 

2  68  cents 

2  28  cents 

1  68  cents 

1  14  cents 

1  00  cents 

80  cents 

Rates  per  Ton  per  Mile  on  the  Numbered  Classes  from  Cincinnati 


To 

1 

3 

3 

4 

5 

6 

Cents 

Cents 

Cents 

Cents 

Cents 

Cents 

Knoxville     .     . 

5  24 

4  48 

3  93 

3  24 

2  75 

2  06 

Chattanooga     . 

4  53 

3  88 

3  40 

2  80 

2  38 

1  79 

Rome      .     .     . 

5  18 

4  45 

3  92 

3  29 

2  71 

2  22 

Atlanta  .     .     . 

4  50 

3  87 

3  41 

2  86 

2  35 

193 

Meridian      .     . 

3  87 

3  23 

2  82 

2  38 

1  96 

1  71 

Birmingham 

3  72 

3  30 

2  84 

2  30 

1  96 

1  50 

Anniston      .     . 

4  49 

3  86 

3  40 

2  85 

2  35 

193 

Selma     .     .     . 

3  61 

3  41 

2  94 

2  37 

197 

1  57 

The  fact,  which  clearly  appears,  that  rates  on  the  numbered 
classes  from  Central  territory  are  made  higher  than  they  other- 
wise would  be,  for  the  purpose  of  securing  to  the  eastern  lines 
the  transportation  of  that  traffic  from  tlie  territory  set  apart 
to  them  under  the  Southern  Railway  &  Steamship  Association 
Agreement,  itself  raises  a  prima  facie  presumption  of  the  unrea- 
sonableness of  those  rates.  In  the  Cincinnati  case,  the  complain- 
ant does  not  directly  question  the  reasonableness  of  the  rates 
from  Cincinnati,  but  in  the  Chicago  case  it  is  charged,  that  the 
rates  on  through  traffic  from  Chicago  to  Southern  territory  are 
made  up  of  "  substantially  the  local  rates  in  effect  from  Chicago 
to  Cincinnati  and  other  Ohio  river  crossings  "  and  ''unreason- 
ahly  high  rates "  from  the  Ohio  on  to  Southern  territory.  It 
appears  that  the  Chicago  rates  are  made  up  of  the  two  rates  as 
charged  —  the  rates  from  that  city  to  the  Ohio  being  the  regu- 
lar Trunk  Line  rates  and  from  the  Ohio  southward,  the  South- 
ern Kail  way  &  Steamship  Association  rates.  The  shipments 
being  through  shipments,  under  a  through  bill  of  lading  quot- 
ing a  total  through  rate,  and  without  breakage  of  bulk  at  the 


IS  I  i:aii.\\  av  i'U()i;li:ms 

rivor,  lliis  inetliod  of  inakiii>j^  uj)  tlu'  rates  is  a  departure  from 
ihe  y;enoral  rule  uiuler  which  ihroui^h  rates  establisheil  by  two  or 
more  councctiug  carriers  arc  less  than  the  sinn  of  their  separate 
rates.  The  Trunk  Line  rates  per  ton  [)er  mile  i'rom  Chicago  to  Cin- 
cinnati and  the  Association  rates  per  ton  per  mile  from  Cincinnati 
to  Southern  territory  are  given  in  the  tables  on  page  175. 

From  these  tables  it  will  be  seen  that  the  rates  per  ton  per 
mile  from  Cincinnati  south  are  in  all  cases  much  higher,  and  in 
many  instances  a  hundred  per  cent  or  more  higher,  than  those 
from  Chicago  to  Cincinnati. 

The  averages  of  the  rates  per  ton  per  mile  on  all  the  classes, 
lettered  as  well  as  numbered,  from  Cincinnati,  are  approximately: 


From  Cinciknati  to 

AvEUAGE  OF  Rates  per  Ton 
PER  Mile  on  all  Classes 

Knoxville 

Chattanooga 

Cents     » 

2  70 
2  33 

Rome 

Atlanta .     . 

2  62 
2  31 

Meridian 

2  00 

Birmingliam 

196 

Anniston 

Selma 

2  27 
185 

By  reference  to  the  tables  in  our  statenient  of  facts  giving 
freight  revenue  per  ton  per  mile  and  cost  per  ton  per  mile,  it 
will  be  seen  that  the  above  averages  are  largely  in  excess  of  that 
revenue  and  cost  on  the  roads  taken  as  a  whole  in,  respectively. 
Southern  territory.  Central  territory,  and  the  country  at  large. 

The  weight  of  the  testimony  of  railroad  officials  connected 
with  the  roads  and  lines  leading  from  Central  territory  to  the 
South,  as  appears  from  our  finding  of  facts,  tends  to  show  that 
the  idea  is  prevalent  in  western  railroad  circles,  that  the  adjust- 
ment of  rates  from  Central  and  Eastern  territories  is  unjustly 
prejudicial  to  the  former,  and  that  those  roads  and  lines,  south 
as  well  as  north  of  the  Ohio,  are  disposed  to  favor  a  readjust- 
ment of  their  rates  on  a  basis  more  favorable  to  Central  ter- 
ritory, but  that  they  have  not  done  so   on   account  of  their 


UNREASONABLE   KATES 


185 


alliance  with  the  eastern  lines  as  members  of  the  Southern  Rail- 
way &/  Steamship  Association,  the  latter  lines  not  being  willing 
to  agree  to  such  readjustment. 

Our  conclusion  upon  the  whole  is,  that,  as  charged  in  the 
complaint  in  the  Chicago  case,  the  rates  on  the  numbered 
classes  from  Cincinnati  and  the  Ohio  river  crossings  to  the 
south  are  "  unreasonably  high,"  and  as  they  enter  into  the 
through  rates  from  Chicago,  that  those  through  rates,  as  well 
as  the  rates  from  Cincinnati,  are  excessive.  There  is  no  com- 
plaint that  the  rates  from  Chicago  to  Cincinnati  and  the  other 
crossings  are  unreasonable  in  themselves  and  no  evidence 
authorizing  us  to  so  find.  They  are  the  regular  Trunk  Line 
rates  and  are  not  subject  to  the  objection,  as  in  the  case  of  the 
Association  rates  south  of  the  river,  that  they  are  made  higher 
than  they  otherwise  would  be  for  the  purpose  of  securing  to 
the  Eastern  Seaboard  lines  traffic  from  territory  set  apart  to 
them.  The  cost  on  freight  in  general  per  ton  per  mile  on  the 
roads  south  of  the  river  appears  to  have  been  for  the  years 
named  in  the  tables  heretofore  given  about  25  per  cent  on  an 
average  greater  than  the  cost  per  ton  per  mile  on  the  roads 
from  Chicago  to  the  river.  The  tonnage  of  the  latter  roads  is 
also  greater  than  that  of  the  former  as  shown  in  the  tables.  Rates 
from  Cincinnati  to  Southern  territory  from  35  to  50  per  cent 
higher  per  ton  per  mile  than  those  from  Chicago  to  Cincinnati 
and  other  Ohio  river  crossings  will,  in  our  opinion,  make  full 
allowance  for  these  differences  in  cost  and  tonnage,  and  be  at 
least  not  unreasonably  low  as  maximum  rates.  The  rates  in  cents 
per  100  pounds  given  below  aie  approximately  upon  this  basis. 


From  Cincinn.vti  to 

1 

3 

3 

4 

5 

6 

Knoxville 
Cliattanooga 
Home  .     .     . 
Atlanta    . 
Meridian .     . 
Birmingham 
Anniston .     . 
Selma .     .     . 

53 
60 

75 
80 

114 
87 
80 

108 

45 
54 
64 
73 
98 
74 
73 
92 

37 
40 

54 
CO 
80 
60 
60 
78 

27 
30 
44 
45 
62 
46 
45 
60 

22 
24 
34 
35 
40 
36 
35' 
48 

20 
22 
24 

27 
38 
28 
27 
36 

186  KAILWAV    riiOJiLEMS 

An  order  will  be  issued  directing'  the  defendants  enpac^ed  in 
transiiDiliiig  trallic  from  (Miicau^o  and  Cincinnati  to  Southern 
ti'rrit()ry  to  desist  from  (•har<j;'ini^^  hii^her  rates  on  the  trafilic 
end)raceil  in  the  numbered  classes  from  those  cities,  respect- 
ively, than  those  in  the  two  preceding  tables  and  to  make  all 
the  necessary  readjustments  of  their  tariffs.  These  rates  are  a 
eonserv^ative  reduction  of  the  existing  rates  and,  while  it  is 
believed  they  will  go  far  to  do  away  with  the  "  undue  preju- 
dice "'  to  which  Central  territory  is  now  subjected,  they  are 
probably  not  so  low  as  they  might  be  made  if  fuller  and  more 
accurate  data  were  accessible.  If  the  rates  by  the  Eastern  Sea- 
board lines  be  taken  as  the  standard  of  comparison,  the  rates 
in  these  tables  will  be  found  to  make  in  the  main  due  allow- 
ance for  the  esthnated  effect  on  those  rates  of  water  competi- 
tion via  the  Atlantic.  They  are  also  higher  than  the  proportions 
of  the  through  rates  from  New  York  via  Cincinnati  to  Chat- 
tanooga, Birmingham  and  Meridian,  allowed  for  the  hauls  from 
Cincinnati  to  those  points,  and  which  were  in  effect  for  a  long 
period  of  years ;  and  they  yield  a  rate  per  ton  per  mile  largely 
in  excess  of  the  reported  cost  per  ton  per  mile  of  freight  on 
the  roads  from  the  Ohio  south  (and  in  other  sections  of  the 
country)  and  much  above  the  average  of  their  receipts  per  ton 
per  mile.  (See  tables  in  statement  of  facts.)  They  are,  it  seems 
scarcely  necessary  to  add,  prescribed  as  maximum  rates  and 
are  not  intended  to  be  prohibitory  of  such  lower  rates  as  the 
carriers  interested  may  find  to  be  just  and  reasonable. 

We  are  not  unmindful  that  a  compliance  with  the  order  in 
these  cases  may  and  probably  will  necessitate  a  readjustment 
of  rates  from  Central  territory  to  other  points  in  Southern  terri- 
tory than  those  named,  but  as  we  took  occasion  to  say  in  the 
case  of  the  Board  of  Trade  of  Troy  v.  Alabama  M.  R.  Co.^ 
4  Inters.  Com.  Rep.  348,  6  I.  C.  C.  R.  1,  "  it  cannot  be  held  to 
be  a  valid  objection  to  the  correction  of  unlawful  rates  to  one 
locality,  that  it  involves  a  like  correction  to  other  localities." 

Even  pecuniary  embarrassment  of  a  road  by  reason  of  insuffi- 
cient receipts  from  all  sources  is  not  a  fact  that  will  Avarrant 
making  rates  on  a  portion  of  its  traffic  unreasonably  high  for 


UNREASONABLE  HATES  187 

the  accomplishment  of  a  purpose  such  as  is  disclosed  in  these 
cases.  Excessive  rates  on  certain  classes  of  traffic  may  be  made 
the  basis  of  proportionately  low  rates  on  other  classes,  and  thus 
shippers  of  the  former  are  taxed  with  burdens  which  in  justice 
should  be  borne  by  the  latter  and  without  any  addition  to  the 
general  aggregate  revenue  of  the  carrier.  It  is  believed,  more- 
over, that  the  reduction  in  rates  ordered  in  these  cases  will 
result  in  a  corresponding  increase  in  the  tonnage  of  the  roads 
in  the  traffic  affected,  and  that  the  revenue  therefrom  will  be 
augmented  rather  than  lessened.  This,  at  any  rate,  will  be  the 
natural  tendency  of  the  change. 

POWER  TO  PRESCRIBE  RATES 

Interstate  Commerce  Commission  v.  Cincinnati, 
N.  O.,  &  T.  P.  Ry.  Co.  etc.i 

On  May  29,  1894,  the  Interstate  Commerce  Commission 
entered  an  order,  of  which  the  following  is  a  copy  : 

At  a  general  session  of  the  Interstate  Commerce  Commission  held  at  its 
office  in  Washington,  D.C.,  on  the  2!)th  day  of  May,  a.d.  1894. 

The  Commission  having  found  and  decided  that  the  rates  com- 
plained of  and  set  forth  in  said  report  and  opinion  as  in  force 
over  roads  operated  by  carriers  defendant  herein,  and  forming 
routes  or  connecting  lines  leading  southerly  from  Chicago  or 
Cincinnati  to  Knoxville,  Tenn.,  Chattanooga,  Tenn.,  Rome,  Ga., 
Atlanta,  Ga.,  Meridian,  Miss.,  Birmingham,  Ala.,  Anniston,  Ala., 
and  Selma,  Ala.,  are  unreasonable  and  unjust,  and  in  violation 
of  the  provisions  of  the  act  to  regulate  commerce : 

It  is  ordered  and  adjudged  that  the  above-named  defendants,  engaged 
or  participating  in  the  transportation  of  freight  articles  enumerated  in  the 
Southern  Railway  &  Steamship  Association  classification  as  articles  of  the 
first,  second,  third,  fourth,  fifth,  or  sixth  class,  do  from  and  after  the  tenth 

^  "  The  Maximum  Freight  Rate  "  case.  Decided  by  tlie  Supreme  Court  of 
tlio  United  States,  May  24,  1807.  167  U.  S.  479.  The  historical  setting  and 
iiiipf)rtance  of  tliis  decisi(ju  will  be  found  in  Ripley's  Railroads  :  Rates  and 
li('gulation,  p.  409. 


1S8 


KAILW.W     rKor.LEiMS 


dav  of  .Inly,  ISUl.  wholly  oi>aso  and  desist  and  thenceforth  abstain  from 
eliari^ing,  deniandinij;,  collecting,  or  receiving  any  greater  aggregate  rate  or 
cimipensation  ju'r  hundred  pounds  for  the  transportation  of  freight  in  any 
such  class  from  Cincinnati,  or  from  Chicago,  to  Knoxvillo,  Tenn.,  Chatta- 
nooga, Tenn.,  Rome,  (Ja.,  Atlanta,  Ga.,  Meridian,  Miss.,  Birmingham,  Ala., 
Anniston,  Aki.,  or  Selma,  Ala.,  than  is  below  specified  in  cents  per  hundred 
pounds  under  said  numbered  classes,  respectively,  and  set  opposite  to  said 
points  of  destination  ;  that  is  to  say : 

On  SuirMKNTS  of  Freight  from  Cincinnati 


Cl.vss  1 

CLA.SS  2 

Class  3 

Class  4 

Class  5 

Class  6 

To 

Rates  per 

Kates  per 

Kates  per 

Rates  per 

Rates  per 

Rates  per 

100  Lbs. 

100  Lhs. 

100  Lhs. 

100  Lhs. 

100  Lbs. 

100  Lbs. 

Cents 

Cents 

Cents 

Cents 

Cents 

Cents 

Knoxville     .     . 

53 

45 

37 

27 

22 

20 

Chattanooga     . 

60 

54 

40 

30 

24 

22 

Rome      .     .     . 

75 

04 

54 

44 

34 

24 

Atlanta  .     .     . 

80 

73 

60 

45 

35 

27 

Meridian      .     . 

114 

08 

80 

62 

49 

38 

Birmingham     . 

87 

74 

60 

46 

36 

28 

Anniston 

80 

73 

60 

45 

35 

27 

Selraa      .     .     . 

108 

92 

78 

60 

48 

36 

On  Shipments  of  Freight  from  Chicago 


Knoxville     .     . 

93 

79 

62 

44 

37 

32 

Chattanooga     . 

100 

88 

65 

47 

39 

34 

Rome      .     .     . 

114 

97 

79 

61 

49 

38 

Atlanta  .     .     . 

127 

107 

85 

62 

50 

39 

Meridian      .     . 

114 

98 

82 

60 

47 

38 

Birmingham     . 

111 

95 

72 

52 

44 

34 

Anniston      .     . 

126 

107 

85 

62 

60 

39 

Selma     .     .     . 

128 

112 

89 

66 

53 

38 

And  said  defendants,  and  each  of  them,  are  also  hereby  notified  and 
required  to  further  readjust  their  tariffs  of  rates  and  charges  so  that  from 
and  after  said  lOth  day  of  July,  1894,  rates  for  the  transportation  of  freight 
articles  from  Cincinnati  and  Chicago  to  southern  points  other  than  those 
hereinabove  specified  shall  be  in  due  and  proper  relation  to  rates  put  into 
effect  by  said  defendants  in  compliance  with  the  provisions  of  this  order. 


The  railroad  companies  having  failed  to  comply  with  the  order, 
the  Interstate  Commerce  Commission  instituted  this  suit  in  the 
circuit  court  of  the  United  States  for  the  southern  district  of 


POWER  TO  PRESCRIBE  RATES  189 

Ohio  to  compel  obedience  thereto.  The  court,  upon  a  hearing, 
entered  a  decree  dismissing  the  bill  (76  Fed.  183),  from  which 
decree  an  appeal  was  taken  to  the  court  of  appeals,  and  that 
court,  reciting  the  order,  submits  to  us  the  following  question : 
"Had  the  Interstate  Commerce  Commission  jurisdictional  power 
to  make  the  order  hereinbefore  set  forth ;  all  proceedings  pre- 
ceding said  order  being  due  and  regular,  so  far  as  procedure  is 
concerned?  " 

Mr.  Justice  Brewer,  after  stating  the  facts  in  the  foregoing 
language,  delivered  the  opinion  of  the  court. 

In  view  of  its  importance,  and  the  full  arguments  that  have 
been  presented,  we  have  deemed  it  our  duty  to  reexamine  the 
question  in  its  entirety,  and  to  determine  what  powers  Congress 
has  given  to  this  Commission  in  respect  to  the  matter  of  rates. 
The  importance  of  the  question  cannot  be  overestimated.  Bil- 
lions of  dollars  are  invested  in  railroad  properties.  Millions  of 
passengers,  as  well  as  millions  of  tons  of  freight,  are  moved  each 
year  by  the  railroad  companies,  and  this  transportation  is  carried 
on  by  a  multitude  of  corporations  working  in  different  parts  of 
the  country,  and  subjected  to  varying  and  diverse  conditions. 

Before  the  passage  of  the  act  it  was  generally  believed  that 
there  were  great  abuses  in  railroad  management  and  railroad 
transportation,  and  the  grave  question  which  Congress  had  to 
consider  was  how  those  abuses  should  be  corrected,  and  what 
control  should  be  taken  of  the  business  of  such  corporations. 
The  present  inquiry  is  limited  to  the  question  as  to  what  it 
determined  should  be  done  with  reference  to  the  matter  of  rates. 
There  were  three  obvious  and  dissimilar  courses  open  for  con- 
sideration. Congress  might  itself  prescribe  the  rates,  or  it  might 
commit  to  some  subordinate  tribunal  this  duty,  or  it  might  leave 
with  the  companies  the  right  to  fix  rates,  subject  to  regulations 
and  restrictions,  as  well  as  to  that  rule  which  is  as  old  as  the 
existence  of  common  carriers,  to  wit,  that  rates  must  be  reason- 
able. There  is  nothing  in  the  act  fixing  rates.  Congress  did  not 
attempt  to  exercise  that  power,  and,  if  we  examine  the  legisla- 
tive and  public  history  of  the  day,  it  is  apparent  that  there  was 
no  serious  thought  of  doing  so. 


IIM)  KAILW.W     I'Wor.LKMS 

Tlu'  (lut^stioii  debated  is  whether  it  vested  in  tlie  Commission 
the  powi  r  and  the  duty  to  fix  rates,  and  the  fact  that  this  is  a 
debatable  iiiiestion,  and  has  been  most  strenuously  and  earnestly 
debated,  is  very  persuasive  that  it  did  not.  The  grant  of  such  a 
power  is  never  to  be  implied.  The  power  itself  is  so  vast  and 
comprehensive,  so  largely  affecting  the  rights  of  carrier  and 
shipper,  as  well  as  indirectly  all  commercial  transactions,  the 
lan>Tua>Te  by  which  the  power  is  given  had  been  so  often  used, 
and  was  so  familiar  to  the  legislative  mind,  and  is  capable  of 
such  definite  and  exact  statement,  that  no  just  rule  of  construc- 
tion would  tolerate  a  grant  of  such  power  by  mere  implication. 
Administrative  control  over  railroads  through  boards  or  com- 
missions was  no  new  thing.  It  had  been  resorted  to  in  Eng- 
land and  in  many  of  the  states  of  this  Union.  In  England, 
while  control  had  been  given  in  respect  to  discrimination 
and  undue  preferences,  no  power  had  been  given  to  prescribe 
a  tariff  of  rates.  In  this  country  the  practice  has  been  vary- 
ing. Notice  the  provisions  in  the  legislation  of  different  states. 
We  quote  the  exact  language,  following  some  of  the  quota- 
tions with  citations  of  cases  in  which  the  statute  has  been 
construed  :     [Abridged.  —  Ed.] 

Alabama.  Code  1886,  p.  295,  §  1130  :  "  Exercise  a  watchful  and  careful 
supervision  over  all  tariffs  and  their  operations,  and  revise  the  same,  from 
time  to  time,  as  justice  to  the  public  and  the  railroads  may  require,  and 
increase  or  reduce  any  of  the  rates,  as  experience  and  business  operations 
may  show  to  be  just." 

California.  In  the  constitution  going  into  effect  January  1,  1880  (article 
12,  §  22)  :  "  Said  commissioners  shall  have  the  power,  and  it  shall  be  their 
duty,  to  establish  rates  of  charges  for  the  transportation  of  passengers  and 
freight  by  railroad  or  other  transportation  companies,  and  publish  the  same 
from  time  to  time,  with  such  changes  as  they  may  make." 

Georgia.  Code  1882,  p.  1.59,  §  719  :  "  Make  reasonable  and  just  rates  of 
freight  and  passenger  tariffs,  to  be  observed  by  all  railroad  companies  doing 
business  in  this  state  on  the  railroads  thereof."  Railroad  v.  Smith,  70  Ga. 
694. 

Illinois.  St.  1878  (Underwood's  Ed.)  p.  114,  §  93.:  "  To  make,  for  each 
of  the  railroad  corporations  doing  business  in  this  state,  as  soon  as  prac- 
ticable, a  schedule  of  reasonable  maximum  rates  of  charges  for  the  trans- 
portation of  passengers  and  freights  on  cars  on  each  of  said  railroads." 


POWER  TO  PRESCRIBE  RATES  191 

Minnesota.  Laws  1887,  c.  10,  p.  55:  "In  case  the  commission  shall  at 
_  any  time  find  that  any  part  of  the  tariffs  of  rates,  fares,  charges  or  classifi- 
cations so  filed  and  published  as  hereinbefore  provided,  are  in  any  respect 
unequal  or  unreasonable,  it  shall  have  the  power,  and  is  hereby  authorized 
and  directed  to  compel  any  common  carrier  to  change  the  same  and  adopt 
such  rate,  fare,  charge  or  classification  as  said  commission  shall  declare  to 
lie  equal  and  reasonable."  State  v.  Chicago,  St.  P.,  M.  &f  O.  Ry.  Co.,  40  Minn. 
267,  41  N.  W.  1047. 

New  Hampshire.  Laws  1883,  p.  79,  §  4  :  <'  Fix  tables  of  maximum  charges 
for  the  transportation  of  passengers  and  freight  upon  the  several  railroads 
operating  within  this  state,  and  shall  change  the  same  from  time  to  time, 
as  in  the  judgment  of  said  board  the  public  good  may  require ;  and  said 
rates  shall  be  binding  upon  the  respective  railroads."  Merrill  v.  Raikoad  Co., 
63  N.  H.  259. 

On  the  other  hand,  in  — 

Kansas.    Laws  1883,  p.  186,  §  11,  reads  : 

No  railroad  company  shall  charge,  demand  or  receive  from  any  person, 
company  or  corporation,  an  unreasonable  price  for  the  transportation  of 
persons  or  property,  or  for  the  hauling  or  storing  of  freight,  or  for  the  use 
of  its  cars,  or  for  any  privilege  or  service  afforded  by  it  in  the  transaction 
of  its  business  as  a  railroad  company.  And  upon  complaint  in  writing, 
made  to  the  board  of  railroad  commissioners,  that  an  unreasonable  price 
has  been  charged,  such  board  shall  investigate  said  complaint,  and  if  sustained 
shall  make  a  certificate  under  their  seal,  setting  forth  what  is  a  reasonable 
charge  for  the  service  rendered,  which  shall  be  prima  facie  evidence  of  the 
matters  therein  stated. 

Section  18  authorized  an  inquiry  upon  the  application  of 
parties  named  in  reference  to  freight  tariffs,  and  an  adjudication 
upon  such  inquiry  as  to  the  reasonable  charge  for  such  freights  ; 
section  14  required  a  notice  of  the  determination  to  be  given  to 
the  railroad  company,  and  a  communication  of  a  failure  to  com- 
ply with  such  determination  in  a  report  to  the  governor;  and 
section  19  reads  : 

Any  railroad  company  which  shall  violate  any  of  the  provisions  of  this 
Act  shall  forfeit  for  every  such  offense,  to  the  person,  company,  or  corpora- 
tion aggrieved  thereby,  three  times  the  actual  damages  sustained  by  the 
said  party  aggrieved,  together  with  the  costs  of  suit,  and  a  reasonable 
attorney's  fee,  to  be  fixed  by  the  court :  and  if  an  appeal  -be  taken  from  the 
judgment,  or  any  part  thereof,  it  shall  be  the  duty  of  the  appellate  court  to 
include  in  the  judgment  an  additional  reasonable  attorney's  fee  for  services 
in  appellate  court  or  courts. 


192  KAIL\\A\     I'KOllLKMS 

The  elTect  i)f  lliusc  provisions  was  to  make  the  determination 
of  the  commission  prima  facie  evidence  of  what  were  reasonable 
rates,  and  to  snbject  the  railroad  company  failing  to  respect  such 
determination  or  to  prove  error  therein  to  the  large  penalties 
prescribed  in  section  19. 

Kentucky.  The  act  of  Ai'iil  (1.  1  SS2,  §  1  (Gen.  St.  p.  1021),  provided 
that  "  if  any  raih-oad  corporation  sliall  wilfully  charge,  collect  or  receive  more 
than  a  just  and  reasonable  rate  of  toll  or  compensation  for  the  transportation 
of  passengers  or  freight  in  this  state  ...  it  shall  be  guilty  of  extortion," 
etc.  Further  sections  created  a  commission,  and  by  section  10  the  commis- 
sioners were  authorized  to  hear  and  determine  complaints  under  the  first 
and  second  sections  of  this  act,  and  upon  such  complaint  and  hearing  file 
their  award  with  the  clerk  of  the  circuit  court,  which  might  be  traversed 
by  any  party  dissatisfied,  and  the  controversy  thereafter  submitted  to  the 
court  for  consideration  and  judgment. 

Massachusetts.  Pub.  St.  1882,  p.  603,  §  14  :  "The  board  shall  have  the 
general  supervision  of  all  the  railroads  and  railways,  and  shall  examine  the 
same."  By  section  15,  if  it  finds  that  any  corporation  has  violated  the  pro- 
visions of  the  act,  or  any  law  of  the  commonwealth,  it  shall  give  notice 
thereof  in  writing,  and  if  the  violation  shall  continue  after  such  notice  shall 
present  the  facts  to  the  Attorney-General,  who  shall  take  such  proceedings 
thereon  as  he  may  deem  expedient.  By  section  193  special  authority  is 
given  to  the  board  to  revise  the  tariffs  and  fix  rates  for  the  transportation 
of  milk.  See  Littlefield  v.  Railroad  Co.,  158  Mass.  1,  32  N.  E.  859. 
«  ******* 

The  legislation  of  other  states  is  referred  to  in  the  Fourth 
Annual  Report  of  the  Interstate  Commerce  Commission,  Append. 
E.,  p.  243  et  seq.  It  is  true  that  some  of  these  statutes  were 
passed  after  the  Interstate  Commerce  Act,  but  most  were  before, 
and  they  all  show  what  pliraseology  has  been  deemed  necessary 
whenever  the  intent  has  been  to  give  to  the  Commissioners  the 
legislative  power  of  fixing  rates. 

It  is  one  thing  to  inquire  whether  the  rates  which  have  been 
charged  and  collected  are  reasonable,  —  that  is  a  judicial  act ; 
but  an  entirely  different  thing  to  prescribe  rates  which  shall  be 
charged  in  the  future,  —  that  is  a  legislative  act.  Chicago, 
31.  <f  St.  P.  Ry.  Go.  V.  Minnesota,  134  U.  S.  418,  458,  10  Sup. 
Ct.  462,  702,  etc. 

It  will  be  perceived  that  in  this  case  the  Interstate  Commerce 
Commission  assumed  the  right  to  prescribe  rates  which  should 


POWER  TO   PRESCRIBE   RATES  193 

control  in  the  future,  and  their  application  to  the  court  was 
for  a  mandamus  to  compel  the  companies  to  comply  with  their 
decision ;  that  is,  to  abide  by  their  legislative  determination  as 
to  the  maximum  rates  to  be  observed  in  the  future.  Now,  no- 
where in  the  Interstate  Commerce  Act  do  we  find  words  similar 
to  those  in  the  statute  referred  to,  giving  to  the  Commission 
power  to  "  increase  or  reduce  any  of  the  rates  " ;  "  to  establish 
rates  of  charges  ";  "  to  make  and  fix  reasonable  and  just  rates  of 
freight  and  passenger  tariffs  "  ;  "  to  make  a  schedule  of  reasonable 
maximum  rates  of  charges"  ;  "  to  fix  tables  of  maximum  charges"; 
to  compel  the  carrier  "  to  adopt  such  rate,  charge  or  classification 
as  said  Commissioners  shall  declare  to  be  equitable  and  reason- 
able." The  power,  therefore,  is  not  expressly  given.  Whence 
then  is  it  deduced  ?  In  the  first  section  it  is  provided  that  "  all 
charges  .  .  .  shall  be  reasonable  and  just ;  and  every  unjust 
and  unreasonable  cliarge  for  such  service  is  prohibited  and 
declared  to  be  unlawful,"  Then  follow  sections  prohibiting  dis- 
crimination, undue  preferences,  higher  charges  for  a  short  than 
for  a  long  haul,  and  pooling,  and  also  making  provision  for  the 
preparation  by  the  companies  of  schedules  of  rates,  and  requir- 
ing their  publication.  Section  11  creates  the  Interstate  Commerce 
Commission.  Section  12,  as  amended  March  2,  1889  (25  Stat. 
858),  gives  it  authority  to  inquire  into  the  management  of  the 
business  of  all  common  carriers,  to  demand  full  and  complete 
information  from  them,  and  adds,  "and  the  Commission  is  hereby 
authorized  to  execute  and  enforce  the  provisions  of  this  act." 
And  the  argument  is  that,  in  enforcing  and  executing  the  pro- 
visions of  the  act,  it  is  to  execute  and  enforce  the  law  as  stated 
in  the  first  section,  which  is  that  all  charges  shall  be  reasonable 
and  just,  and  that  every  unjust  and  unreasonable  charge  is  pro- 
hibited ;  that  it  cannot  enforce  this  mandate  of  the  law  without 
a  determination  of  what  are  reasonable  and  just  charges,  and,  as 
no  other  tribunal  is  created  for  such  determination,  therefore  it 
must  be  implied  that  it  is  authorized  to  make  the  determination, 
and,  having  made  it,  apply  to  the  courts  for  a  mandamus  to 
compel  the  enforcement  of  such  determination.  In  other  words, 
that  though  Congress  has  not,  in  terms,  given  the  Commission 


[[).[  KAILW  AV    J'llor.LEMS 

the  power  to  (letonnine  what  are  just  and  reasonable  rates  for 
the  future,  yet,  as  no  other  tribunal  has  been  provided,  it  must 
have  intendi'd  that  ihe  ( \>niniission  shouhl  exercise  the  power.  || 
We  do  not  think  this  argument  can  be  sustained.  If  there  were  ' 
nothing  else  in  the  act  than  the  lirst  section,  conunanding  rea- 
sonable rates,  and  the  twelfth,  empowering  the  (-ommission  to 
execute  and  enforce  the  provisions  of  the  a(!t,  we  should  be  of 
the  opinion  that  Congress  did  not  intend  to  give  to  the  (Commis- 
sion the  power  to  prescribe  any  tariff,  and  determine  what  for 
the  future  should  be  reasonable  and  just  rates.  The  power  given 
is  the  power  to  execute  and  enforce,  not  to  legislate.  Tlie  power 
given  is  partly  judicial,  partly  executive  and  administrative,  but 
not  legislative.  Pertinent  in  this  respect  are  these  observations 
of  counsel  for  the  appellees  : 

Article  2,  §  3,  of  tlie  Constitution  of  the  United  States,  ordains  that  the 
President  "  shall  take  care  that  the  laws  be  faithfully  executed."  The  act 
to  regulate  commerce  is  one  of  those  laws.  But  it  will  not  be  argued  that 
the  president,  by  implication,  possesses  the  power  to  make  rates  for  carriers 
engaged  in  interstate  commerce. 

The  first  section  simply  enacted  the  common-law  requirement  that  all 
charges  shall  be  reasonable  and  just.  For  more  than  a  hundred  years  it 
has  been  the  affirmative  duty  of  the  courts  "  to  execute  and  enforce  "  the 
common-law  requirement  that  "  all  chai-ges  shall  be  reasonable  and  just," 
and  yet  it  has  never  been  claimed  that  the  courts,  by  implication,  possessed 
the  power  to  make  rates  for  carriers. 

But  the  power  c^  fixing  rates  under  the  Interstate  Commerce 
Act  is  not  to  be  determined  by  any  mere  considerations  of  omis- 
sion or  implication.  The  act  contemplates  the  fixing  of  rates, 
and  recognizes  the  authority  in  which  the  power  exists.  Sec- 
tion 6  provides,  etc. 

Finally,  the  section  provides  that,  if  any  common  carrier 
fails  or  neglects  or  refuses  to  file  or  publish  its  schedules  as 
provided  in  the  section,  it  may  be  subject  to  a  writ  of  man- 
damus issued  in  the  name  of  the  people  of  the  United  States  at 
the  relation  of  the  Commission.  Now,  but  for  this  act  it  would 
be  unquestioned  that  the  carrier  had  the  right  to  prescribe  its 
tariff  of  rates  and  charges,  subject  to  the  limitation  that  such 
rates  and  charges  should  be  reasonable.  This  section  6  recog- 
nizes that  right,   and  provides  for  its  continuance.      It  speaks 


POWER   TO  PEESCRIBE  HATES  195 

of  schedules  showing  rates  and  fares  and  charges  which  the 
common  carrier  "  has  established  and  which  are  in  force."  It 
does  not  say  that  the  schedules  thus  prepared,  and  which  are  to 
be  submitted  to  the  Commission,  are  subject,  in  any  way,  to  the 
latter's  approval.  Filing  with  the  Commission  and  publication 
by  posting  in  the  various  stations  are  all  that  is  required,  and 
are  the  only  limitations  placed  on  the  carrier  in  respect  to  the 
fixing  of  its  tariff.  Not  only  is  it  thus  plainly  stated  that  the 
rates  are  those  which  the  carrier  shall  establish,  but  the  prohibi- 
tions upon  change  are  limited  in  the  case  of  an  advance  by  10 
days'  public  notice,  and  on  reduction  by  3  days.  Nothing  is 
said  about  the  concurrence  or  approval  of  the  Commission,  but 
they  are  to  be  made  at  the  will  of  the  carrier.  Not  only  are 
there  these  provisions  in  reference  to  the  tariff  upon  its  own 
line ;  but,  further,  when  two  carriers  shall  unite  in  a  joint  tariff 
(and  such  union  is  nowhere  made  obligatory,  but  is  simply 
permissive),  the  requirement  is  only  that  such  joint  tariff  shall 
be  filed  with  the  Commission,  and  nothing  but  the  kind  and 
extent  of  publication  thereof  is  left  to  the  discretion  of  the 
Commission. 

It  will  be  perceived  that  the  section  contemplates  a  change  in 
rates,  either  by  increase  or  reduction,  and  provides  the  condition 
therefor  ;  but  of  what  significance  is  the  grant  of  this  privilege 
to  the  carrier,  if  the  future  rate  has  been  prescribed  by  an  order 
of  the  Commission,  and  compliance  with  that  order  enforced  by 
a  judgment  of  the  court  in  mandamus  ?  The  very  idea  of  an 
order  prescribing  rates  for  the  future,  and  a  judgment  of  the 
court  directing  compliance  with  that  order,  is  one  of  perma- 
nence. Could  anything  be  more  absurd  than  to  ask  a  judgment 
of  the  court  in  mandamus  proceedings  that  the  defendant  com- 
ply with  a  certain  order,  unless  it  elects  not  to  do  so?  The 
fact  that  the  carrier  is  given  the  power  to  establish  in  the  first 
instance,  and  the  right  to  change,  and  the  conditions  of  such 
change  specified,  is  irresistible  evidence  that  this  action  on  the 
part  of  the  carrier  is  not  subordinate  to,  and  dependent  upon 
the  judgment  of,  the  Commission. 

We  have  therefore  these  considerations  presented :  First. 
The  power  to  f)i-escril)e  a  tariff  of  rates  for  carriage  by  a  common 


l<)(i  KAILW  AV    i'KOl'.LE.MS 


i-arricr  is  ;i  U'«;isl;itivc,  and  not  an  administrative  or  jndicial, 
tiuu'tion,  and,  havinu^  rcsix't't  to  the  largi'  anionnt  of  prt)perty 
invested  in  niilroads,  liu-  sarious  eonipanies  engaged  therein, 
the  thousands  of  miles  of  road,  and  the  millions  of  tons  of 
frei*j^hl  carried,  the  varying  and  diverse  eonditions  attaehing  to 
sneh  i-arriage,  is  a  power  of  supreme  delicacy  and  importance. 
Second.  That  Congress  has  transferred  such  a  power  to  any  ad- 
ministrative body  is  not  to  be  presumed  or  implied  from  any 
doubtful  and  uncerlain  language.  The  words  and  phi'ases  el'li- 
cacious  to  make  such  a  delegation  of  power  are  well  understood, 
and  have  been  fre(|uently  used,  and,  if  Congress  had  intended  to 
grant  such  a  power  to  the  Interstate  Commerce  Commission,  it 
cannot  be  doubted  that  it  would  have  used  language  open  to  no 
misconstruction,  but  clear  and  direct.  Third.  Incorporathig  into 
a  statute  the  common-Liw  obligation  resting  upon  the  carrier  to 
make  all  its  charges  reasonable  and  just,  and  directing  the  Com- 
mission to  execute  and  enforce  the  provisions  of  the  act,  does 
not  by  implication  carry  to  the  Commission,  or  invest  it  with  the 
power  to  exercise,  the  legislative  function  of  prescribing  rates 
which  shall  control  in  the  future.  Fourth.  Beyond  the  infer- 
ence which  irresistibly  follows  from  the  omission  to  grant  in 
express  terms  to  the  Commission  this  power  of  fixing  rates  is 
the  clear  language  of  section  6,  recognizing  the  right  of  the 
carrier  to  establish  rates,  to  increase  or  reduce  them,  and  pre- 
scribing the  conditions  upon  which  such  increase  or  reduction 
may  be  made,  and  requiring,  as  the  only  conditions  of  its  action 
—  First,  publication  ;  and,  second,  the  filing  of  the  tariff  with 
the  Commission.  The  grant  to  the  Commission  of  the  power  to 
prescribe  the  form  of  the  schedules,  and  to  direct  the  place  and 
manner  of  publication  of  joint  rates,  thus  specifying  the  scope 
and  limit  of  its  functions  in  this  respect,  strengthens  the  con-' 
elusion  that  the  power  to  prescribe  rates  or  fix  any  tariff  for  the 
future  is  not  among  the  powers  granted  to  the  Commission. 

These  considerations  convince  us  that  under  the  Interstate 
Commerce  Act  the  Commission  has  no  power  to  prescribe  the 
tariff  of  rates  which  shall  control  in  the  future,  and  therefore 
cannot  invoke  a  judgment  in  mandamus  from  the  courts  to 
enforce  any  such  tariff  by  it  prescribed. 


1 


POWER  TO  PRESCRIBE  RATES  197 

But  has  the  Commission  no  functions  to  perform  in  respect 
to  the  matter  of  rates,  no  power  to  make  any  inquiry  in  respect 
thereto?  Unquestionably  it  has,  and  most  important  duties  in 
respect  to  this  matter.  It  is  charged  with  the  general  duty  of 
inquiring  as  to  the  management  of  the  business  of  railroad 
companies,  and  to  keep  itself  informed  as  to  the  manner  in 
which  the  same  is  conducted,  and  has  the  right  to  compel  com- 
plete and  full  information  as  to  the  manner  in  which  such 
carriers  are  transacting  their  business.  And,  with  this  knowl- 
edge, it  is  charged  with  the  duty  of  seeing  that  there  is  no 
violation  of  the  long  and  short  haul  clause  ;  that  there  is  no 
discrimination  between  individual  shippers,  and  that  nothing  is 
done,  by  rebate  or  any  other  device,  to  give  preference  to  one  as 
against  another ;  that  no  undue  preferences  are  given  to  one 
place  or  places  or  individual  or  class  of  individuals,  but  that  in 
all  things  that  equality  of  right,  which  is  the  great  purpose  of 
the  Interstate  Commerce  Act,  shall  be  secured  to  all  shippers. 
It  must  also  see  that  that  publicity  which  is  required  by  section 
6  is  observed  by  the  railroad  companies.  Holding  the  railroad 
companies  to  strict  compliance  with  all  these  statutory  pro- 
visions, and  enforcing  obedience  to  all  these  provisions,  tends, 
as  observed  by  Commissioner  Cooley  in  Re  Chicago,  St.  P.  ^ 
K.  C.  Ry.  Co.,  2  Interst.  Commerce  Com.  R.  231,  261,  to  both 
reasonableness  and  equality  of  rate,  as  contemplated  by  the 
Interstate  Commerce  Act.  *  *  *  * 

Our  conclusion,  then,  is  that  Congress  has  not  conferred 
upon  the  Commission  the  legislative  power  of  prescribing  rates, 
either  maximum  or  minimum  or  absolute.  As  it  did  not  give 
the  express  power  to  the  Commission,  it  did  not  intend  to  secure 
the  same  result  indirectly  by  empowering  that  tribunal  to  de- 
termine what  in  reference  to  the  past  was  reasonable  and  just, 
whether  as  maximum,  minimum,  or  absolute,  and  then  enable  it 
to  obtain  from  the  courts  a  peremptory  order  that  in  the  future 
the  railroad  companies  should  follow  the  rates  thus  determined 
to  have  been  in  the  past  reasonable  and  just. 

The  question  certified  must  be  answered  in  the  negative,  and 
it  is  so  orderfed. 

Mr.  .lustice  Harlan  dissented. 


lilS  K•A1I.\\.\^     IMJor.LK.MS 

KKASONAr.U:    KATES 

Kkckivkus'  and  Siiii'i'Kws'  Association  of  Cincinnati 
r.  Intkhstati-:  Cummeuce  Commission,  etc.^ 

Caiiland,  -hiihir  : 

In  this  opinion,  tor  tlio  sake  of  brevity,  the  Cincinnati,  New 
Orleans  &  Texas  Pacilic  Railway  Co,  will  be  abbreviated  C,  N.  O. 
«S:  T.  P. ;  Tlie  Interstate  Commerce  Commission  will  be  abbre- 
viated Commission;  tlu^  Lonisville  &  Nashville  Railway  Co. 
will  be  abbreviated  L.  iS:  X. ;  and  the  Nashville,  Chattanooga  & 
St.  Jvonis  Railway  Co.  will  be  abbreviated  N.,  C.  &  St.  L. 

Petitioners  are  lirms,  partnerships,  and  corporations  engaged 
hi  various  kinds  of  mercantile,  commercial,  mdustrial,  and  man- 
ufacturing pursuits  in  Hamilton  County,  Ohio,  and  manufacture 
and  produce  goods,  wares,  and  mercliandise,  and  sell  annually 
large  quantities  thereof  of  great  value,  alleged  hi  tlie  ])ill  to 
be  several  hundred  thousand  dollars,  to  purchasers  loeated  at 
Chattanooga,  Tenn.,  which  said  goods,  wares,  and  merchan- 
dise are  enumerated  in  the  freight  tariffs  and  classifications 
governing  the  same  of  the  res[)oiident,  C,  N.  O.  &  T.  P.  Said 
petitioners  have  m vested  hi  building  up  and  maintaining  their 
respective  lines  of  business  an  amount  exceeding  the  sum  of 
$25,000,000. 

The  C,  N.  O.  &  T.  P.  is  a  corporation  duly  organized  under 
the  laws  of  the  State  of  Ohio  and  is  a  common  carrier  engaged 
in  the  transportation  of  goods,  wares,  and  merchandise  by  rail- 
road from  the  city  of  Cincinnati,  Ohio,  to  the  city  of  Chattanooga, 
Tenn.,  tlie  northern  tefminus  of  said  C,  N.  O.  &  T.  P.  being  at 
Cmcinnati  and  the  southern  at  Chattanooga. 

On  the  14th  day  of  July,  1910,  petitioners  filed  their  bill  of 
complaint  in  the  Circuit  Court  of  the  United  States  for  the 
Southern  District  of  Ohio,  Western  Division,  for  the  purpose  of 
obtauiing  a  judgment  of  that  court  setting  aside  and  annulling 

1  United  States  Commerce  Court ;  decided  July  20, 1911.  For  the  significance 
of  this  decision,  consult  Kijjley,  Railroads:  Rates  and  Regulation,  p.  588. 


I 


REASONABLE  EATES 


1U9 


an  order  of  the  Commission  dated  February  17,  1910,  but  in 
fact  rendered  May  24,  1910,  and  wliicli  order  is  in  the  followmg 
language : 

This  case  being  at  issue  upon  complaint  and  answers  on  file,  and  having 
been  duly  heard  and  submitted  by  the  parties,  and  full  investigation  of  the 
matters  and  things  involved  having  been  had,  and  the  Commission  having 
on  the  date  hereof  made  and  filed  a  report  containing  its  findings  of  fact 
and  conclusions  thereon,  which  said  report  is  hereby  referred  to  and  made 
a  part  hereof,  and  having  found  that  the  present  rates  of  defendant  the 
Cincinnati,  New  Orleans  &  Texas  Pacific  Railway  Co.  (lessee  of  the  Cin- 
cinnati Southern  Railway)  for  the  transportation  of  articles  in  the  num- 
bered classes  of  the  Southern  Classification  from  Cincinnati,  Ohio,  to 
Chattanooga,  Tenn.,  are,  to  the  extent  that  said  rates  exceed  the  rates 
named  in  paragraph  3  hereof,  unjust  and  unreasonable. 

2.  It  is  ordered,  That  said  defendant  be,  and  it  is  hereby,  notified  and 
required  to  cease  and  desist,  on  or  before  the  15th  day  of  July,  1910,  and 
for  a  period  of  not  less  than  two  years  thereafter  abstain,  from  exacting 
its  present  rates  for  the  transportation  of  articles  in  the  numbered  classes 
of  the  Southern  Classification  from  Cincinnati,  Ohio,  to  Chattanooga, 
Tenn. 

3.  It  is  further  ordered.  That  said  defendant  l)e,  and  it  is  hereby,  noti- 
fied and  required  to  establish,  on  or  before  the  15th  day  of  July,  1910,  and 
maintain  in  force  thereafter  during  a  period  of  not  less  than  two  years, 
rates  for  the  transportation  of  articles  in  the  numbered  classes  of  the  South- 
ern Classification  from  Cincinnati,  Ohio,  to  Chattanooga,  Tenn.,  which 
shall  not  exceed  the  following,  in  cents  per  100  pounds,  to  wit : 


Class • 

1 

2 

3 

4 

5 

6 

Rate 

70 

60 

53 

44 

38 

29 

The  C,  N.  O.  &  T.  P.  and  tlie  Commission  filed  demurrers 
to  the  bill.  Subsequently  the  case  was  transferred  to  this  court 
under  the  provisions  of  section  6  of  the  act  to  create  a  Commerce 
Court  and  to  amend  the  act  entitled  "  An  act  to  refjulate  com- 
merce,"  and  the  cause  has  now  been  submitted  for  decision  upon 
tlie  bill  and  demurrers. 

The  bill  of  com})laint  is  quite  voluminous,  consisthig,  exclusive 
of  exhibits,  of  G(j  printed  pages.  The  material  allegations,  how- 
ever, which  in  our  judgment  are  necessary  to  be  considered  in 
order  to  dispose  of  tlie  case  may  be  stated  briefly  as  follows: 


200 


KAii.w  .\\    ruor.LKMs 


III  lSi)4  the  Commission  (Iccidcd  llic  {-uses  of  Cincinnati Frrif /Id 
Bureau  v.  (\,  N.  0.  .j-  T.  /'.,  and  ('/iira;/o  Frcij/ht  Bureau  v.  L. 
.f  K.,  rt  <il  (t)  I.  ('.  ('.  Ivop.,  IDT)).!  'riicsc  proceedings  had  been 
instituted  \)\  the  eonnneivial  inti-rests  of  Cincinnati  and  Chicago 
for  the  pnrpose  of  eonvcting  an  allegi'd  discrimination  in  rates 
upon  the  nnnd)eri'd  classes  from  pohits  of  origin  in  the  Central 
West  as  compared  with  rates  from  ])oints  of  origin  in  the  East, 
to  southern  territory.  I'he  eomphiint  of  the  (Jhieago  Fri'ight 
Uurean  alleged  that  the  I'ates  for  the  transportation  of  freight 
from  western  tosonthei'n  points  upon  the  numbered  classes  from 
Cincinnati  and  otht-r  Oiiio  river  crossings  to  southern  points  of 
destination  were  excessive,  and  that  the  rates  from  Chicago  were 
even  more  excessive.  Under  this  allegation  the  Commission  held 
that  it  might  inquire  into  the  inherent  reasonableness  of  these 
rates,  and  proceeded  to  dispose  of  the  case  upon  that  ground. 
The  Commission  held  that  the  rates  from  Cincinnati  were  too 
high  and  should  be  materially  reduced.  The  following  are  the 
rates  then  in  effect  from  Cincmnati  to  Chattanooga  and  those 
ordered  by  the  Commission,  showing  the  reductions  made : 


Classes       

1 

2 

3 

4 

5 

6 

Rates  in  effect 

Reduced  rates 

Reductions 

76 
60 
16 

65 
54 
11 

57 
40 
17 

47 
30 
17 

40 
24 
16 

30 

22 
8 

The  order  of  the  Commission,  made  in  pursuance  of  this  deci- 
sion, was  not  complied  with  by  the  carriers,  and  the  Commission 
thereupon  instituted  proceedings  in  the  Circuit  Court  for  the 
Southern  District  of  Ohio  to  enforce  obedience  to  its  require- 
ments. Such  proceedings  were  had  in  that  suit  that  the  Supreme 
Court  of  the  United  States  finally  directed  a  dismissal  of  the  bill 
of  complaint  upon  the  ground  that  the  act  to  regulate  commerce 
as  it  then  stood  conferred  no  authority  upon  the  Commission  to 
establish  a  rate  for  the  future ;  that  this  order  was  in  effect  the 
fixing  of  a  future  rate  and  therefore  without  warrant  of  law,  and 

void.  (Z  a  a  V.  a,  n.  o.  ^  t.  p.,  167  u.  s.,  479.) 

^  Reprinted  at  head  of  tliis  cliapter. 


I 


REASONABLE  KATES  201 

When  the  interstate  commerce  law  was  amended  in  1906  by 
giving  to  the  Commission  power  to  fix  and  estabUsh  a  rate  for 
the  future,  the  Receivers  &  Shippers  Association  of  Cincinnati 
commenced  proceedings  before  the  Commission  and  against  the 
C,  N.  O.  &  T.  P.  and  the  Southern  Railway  Co.  for  the  purpose 
of  obtainhig  the  benefit  of  the  holding  of  the  Commission  in  the 
former  case.  As  a  result  of  a  hearing  had  by  the  Commission 
in  the  proceedings  last  mentioned,  the  order  complained  of  in 
this  action  was  made. 

It  is  claimed  by  the  petitioners  that  the  maximum  rate  fixed 
by  said  order  is  much  too  high  and  is  extortionate,  so  much  so 
that  the  Commission  in  making  the  order  violated  the  fifth  amend- 
ment to  the  Constitution  of  the  United  States  ;  which  prohibits 
the  taking  of  private  property  without  due  process  of  law  or 
without  just  compensation.  While  said  order  of  the  Commission 
was  in  full  force  and  unsuspended  in  any  way,  the  C,  N.  O.  & 
T.  P.  put  into  effect  a  scliedule  of  rates  for  the  transportation 
of  freight  between  Cincinnati,  Ohio,  and  Chattanooga,  Tenn.,  in 
accordance  with  the  maximum  fixed  by  the  Commission,  and  said 
rates  are  still  in  force. 

In  the  report  of  the  Commission,  which  is  made  a  part  of  said 
order,  it  is  found  as  follows : 

If  it  is  our  duty  to  take  this  railroad  by  itself  and  to  determine  the  rea- 
sonableness of  these  rates  by  reference  to  cost  of  construction,  cost  of  main- 
tenance, and  profit  upon  the  investment,  we  think  the  complainants  have 
established  their  case  and  that  these  rates  oiight  fairly  to  be  reduced  by  as 
great  an  amount  as  was  formerly  found  reasonable  by  this  Commission. 

This  language  of  the  report  refers  to  the  finding  made  by  the 
Commission  in  1894,  and  the  reductions  made  then  by  the  Com- 
mission appear  in  the  table  heretofore  mentioned  in  this  opinion. 

The  bill  in  this  case  also  alleges  that  if  the  schedule  of  rates 
fixed  by  the  Commission  in  1894  had  been  in  force  or  had  been 
applied  during  the  years  1903  to  1908,  botli  inclusive,  the  yearly 
average  net  profit  of  the  C,  N.  O.  &  T.  P.  would  have  been 
40.66  per  cent.  It  also  appears  from  the  bill  of  complaint  that 
the  city  of  Cincinnati  owns  the  line  of  railroad  between  the  city 
of  Cincinnati,  Ohio,  and  the  city  of  Chattanooga,  Tenn.,  which 


:i()2  i; A II. WW    im;()|;li:.ms 

is  I'tMuinonly  kiunvn  as  the  ( 'inciiiiiali  Southern,  and  now  and 
durin«j^  llu'  times  uu  iiiimud  in  the  bill  operated  by  the  ('.,  N.  (). 
lV:  T.  r.  'The  load  oiii;inally  cost  the  city  of  Cincinnati  «fl8,000,- 
000,  and  the  lily  subsetpu'ntly  s[)ent  for  terminal  facilities  -f  2,500,- 
000,  making  a  total  cost  of  the  Cincinnati  Southern  to  the  city 
of  Cincinnati  of  )jt!20,500,000.  The  C,  N.  O.  &  T.  P.  leased  this 
property,  and  is  still  leasing  it,  and  the  basis  of  rental  returned 
to  the  city  of  Cuicinnati  prior  to  190G  was  6  percent,  and  5  per 
cent  subsequent  to  that  date.  The  C,  N.  O.  &  T.  P.  owns  its 
own  equipment  and  never  did  have  any  interest  in  the  Cincinnati 
Southern  beyond  the  right  to  use  the  property  under  the  terms 
of  the  leasehold.  The  capital  stock  of  the  C,  N,  O.  &  T.  P.  for 
the  years  1903  to  1908,  both  inelusive,  was  f^5,000,000,  divided 
into  .$3,000,000  of  common  stock  and  $2,000,000  of  preferred 
stock,  and  about  the  year  1908  it  hicreased  its  capital  stock  by 
adding  $500,000  of  preferred  stock,  making  its  entire  issued 
capital  stock  for  1908  $5,500,000.  The  value  of  the  property 
of  the  C,  N.  O.  &  T.  P.  between  the  years  1903  and  1908,  both 
inclusive,  was  $5,000,000,  and  after  1908  was  $5,500,000,  and 
was  all  the  property  of  the  C,  N.  O.  &  T.  P,  devoted  to  and 
employed  in  the  public  service  and  use  and  for  the  public 
convenience. 

The  C,  N.  O.  &  T.  1\  is  a  single-track  railroad  from  Cincinnati 
to  Chattanooga,  a  distance  of  336  miles,  without  branches,  and  has 
an  average  gross  earning  per  mile  of  $20,082.6(3.  The  L.  &  N.  runs 
fr(mi  Cuicinnati  to  Louisville,  and  from  Louisville  to  Nashville, 
the  distance  from  Cincinnati  to  Louisville  being  114  miles  and 
the  distance  from  Louisville  to  Nashville  being  185.9  miles.  Tlie 
distance  from  Cincinnati  to  Nashville  vin  the  L.  &  N.  is  thus  shown 
to  be  299.9  miles.  Nashville  is  connected  with  Chattanooga  by 
the  N.,  C.  &  St.  L.,  the  distance  from  Nashville  to  Chattanooga 
being  151  miles,  making  the  distance  from  Cincinnati  to  C'hatta- 
nooga,  via  the  L.  &  N.  from  Cincinnati  to  Louisville  and  Louis- 
ville to  Nashville,  and  from  Nashville  to  Chattanooga  over  the 
N.,  C.  &  St.  L.,  450.9  miles.  The  direct  haul  from  Cincinnati 
to  Chattanooga  via  the  C,  N.  O.  &  T.  P.  is  thus  114.9  miles 
shorter  than  the  mdirect  haul  via  the  L.  &  N.  and  the  N.,  C.  & 


REASONABLE  RATES  203 

St.  L.  by  way  of  Louisville  and  Nasliville.  The  average  gross 
earnings,  per  mile,  between  Cincinnati  and  Chattanooga  via  the 
L.  &  N.  and  the  N.,  C.  &  St.  L.  is  125,593.40. 

In  view  of  the  finding  of  the  Connnission  heretofore  mentioned, 
it  necessarily  follows  that  its  order  ought  to  have  followed  its 
findings,  unless  the  reasons  stated  by  the  Commission  for  not 
doino-  so  are  valid.  In  this  connection  it  must  be  remembered, 
however,  that  the  power  to  estal)lish  reasonable  and  just  rates  for 
the  future  for  the  transportation  of  freight  by  connnon  carriers 
is  vested  by  law  in  the  Commission  and  no  part  thereof  is  vested 
in  this  Court,  and  this  C'ourt  may  not  disturb  the  order  com- 
plained of  unless  it  can  be  clearly  found  that  it  conflicts  with  the 
provisions  of  the  fifth  amendment  to  the  Constitution  of  the 
United  States,  providing  the  power  conferred  has  been  regularly 
exercised.  The  order  of  the  Commission  itself  does  not  fix  a 
schedule  of  rates  to  be  put  in  effect  by  the  C,  N.  O.  &  T.  P., 
but  simply  fixes  a  maximum  rate  beyond  which  the  railroad  may 
not  go.  The  railroad,  however,  upon  the  making  of  this  order 
established  the  schedule  of  rates  as  high  as  the  order  would 
permit,  and  therefore  it  may  be  truly  said  that  the  schedule  of 
rates  put  in  effect  by  the  railway  company  is  the  schedule  of  rates 
made  by  the  Commission  or  at  least  authorized  by  it.  All  that 
this  Court  could  do  if  it  found  the  maximum  schedule  fixed  by 
the  Commission  violated  the  constitutional  rights  of  shippers  over 
the  C,  N.  O.  &  T.  P.  would  be  to  set  aside  the  order ;  but  as  the 
rates  prescribed  thereby  have  already  gone  into  effect,  and  as  this 
Court  has  no  authority  or  power  to  establish  rates  or  to  order  that 
any  particular  rate  be  put  in  effect,  it  necessarily  results  that 
the  rates  now  m  effect  on  the  C,  N.  O.  &  T.  P.  would  continue 
in  effect  unless  changed  by  the  carrier  or  .the  Commission.  The 
carrier  could  change  its  rates  if  the  order  was  set  aside  and  even 
make  them  higher  than  they  are  now.  The  Commission  could 
again  investigate  the  matter  and  fix  a  new  schedule  of  rates.  So 
that  it  appears  that  all  the  shii)pers  would  gaui  in  this  litigation 
would  be  the  vacation  of  the  order,  and  if  the  court  held  that  the 
rates  permitted  were  so  high  as  to  be  violative  in  a  constitutional 
sense  of  the  rights  of  the  shippers  then  no  doubt  the  Connnission 


'Jdl  UAILW.W     I'KOI'.I.KMS 

WDuUl  not  ag'uin  t'st;il)lisli  such  a  lii^^h  sclu'dulc  of  rates.  But  in 
aiiv  cvi'Ut  it"  \\i'  should  set  aside  the  order  on  constitutional 
^Tounds  tlie  shi[>[)cis  would  he  ol)lii;'cd  to  go  again  to  the  Com- 
niission  tor  relii'f.  At  lirst  we  were  inclined  to  think  that  the 
result  which  would  be  obtained  by  a  successful  termination  of 
this  suit  in  l)cliall'  of  tlu'  shii)[)crs  would  be  so  inconsequential 
as  to  render  it  unneci'ssary  for  this  Court  to  take  jui'isdiction 
over  the  case,  but  u})on  further  retlectiou  it  would  seem  that  the 
shippers  havi-  the  right  to  a  judg-incnt  of  this  court  as  to  w  hetlier 
or  not  the  schedule  of  rates  contained  in  tlu^  order  complained  of 
is  so  high  as  to  be  violative  of  the  iiftli  amendment  to  the  Con- 
stitution  as  to  the  difference  between  vi^hat  the  Commission  found 
would  be  reasonable  if  they  considered  the  C,  N.  O.  &  T.  P. 
by  itself  and  the  maximum  rates  tliat  were  fixed.  Then  if  the 
shippers  agam  wx^it  before  the  Commission  they  would  have  the 
benefit  of  the  judgment  of  this  court  upon  that  subject.  And 
in  that  view  we  proceed  to  consider  the  question  as  to  whether 
the  reasons  given  by  the  Commission  for  not  reducing  the  sched- 
ule of  rates  for  the  classes  mentioned  to  the  sums  which  the  Com- 
mission found  would  be  reasonable  if  the  C,  N.  O.  &  T,  P.  should 
be  considered  by  itself  are  valid. 

It  is  claimed  by  the  petitioners  that  the  Commission,  liaving 
found  that  the  so-called  GO-cent  schedule  would  be  reasonable  for 
the  C,  N.  O.  &  T.  P.  considered  by  itself,  was  bound  to  establish 
such  schedule  as  the  result  of  its  finding,  and  that  the  Commis- 
sion's establishing  a  higher  schedule  for  the  reasons  mentioned  in 
its  report,  while  seemingly  within  its  power  to  fix  a  reasonable 
rate,  w^as  really  and  in  fact  beyond  its  power,  as  the  Connnission 
had  no  right  to  take  into  consideration  in  fixing  a  higher  schedule 
the  matters  which  induced  it  to  make  the  order  which  it  did. 

There  are  two  questions  which  are  presented  to  this  court  for 
decision :  First.  Are  the  reasons  given  by  the  Commission  for 
the  establishment  of  the  schedule  mentioned  in  the  order  valid, 
or  are  they  so  outside  and  beyond  the  power  of  the  Commission 
to  fix  a  reasonable  rate  as  to  come  witliin  the  rule  that  prohibits 
the  Commission  from  fixing  a  rate  for  reasons  which  the  Com- 
mission is  not  authorized  to  consider?    [Southern  Pacific  Co.  v. 


REASONABLE  RATES  205 

I.  C.  C,  219  U.  S.,  433.)    Second.    Is  it  shown,  beyond  reason- 

1  able  question,  by  the  present  record  that  the  schedvile  of  rates 

|i  contamed  m  the  order  of  the  Commission  complamed  of  clearly 

violates  the  fifth  amendment  to  the  Constitution  of  the  United 

States  by  taking  the  property  of  petitioners  without  due  process 

|!  of  law  or  without  just  compensation  if  the  taking  is  for  a  public 

purpose  ? 

It  seems  to  have  been  decided  in  the  case  of  Board  of  Railroad 
Commissioners  of  the  State  of  Kansas  v.  Symms  Girocery  Co.  et  al., 
35  Pac,  217,  that  the  shipper  can  not  invoke  these  constitutional 
•  provisions  for  the  reason  that  he  is  not  obliged  to  ship ;  that  he 
may  utilize  the  rate  prescribed  or  he  may  not.    We  are  not  im- 
pressed with  the  soundness  of  this  decision.    The  logical  result 
of  such  a  holding  as  applied  to  the  facts  in  the  present  case  would 
be  equivalent  to  saying  to  the  shipper,  "  You  may  pay  an  uncon- 
stitutional rate  or  go  out  of  business  "  ;  and  we  do  not  think  that 
the  protection  of  the  Constitution  is  held  on  any  such  condition. 
In  stating  the  reasons  which  in  the  judgment  of  the  Commis- 
■  sion  compelled  it  to  take  into  account  in  fixmg  the  schedule  of 
rates  which  it  did  (jther  considerations  and  other  railroads  than 
the  C,  N.  O.  &  T.  P.,  we  can  do  no  better  than  to  quote  from 
the  report  of  the  Commission,  as  follows: 

The  defendants  also  contend  that  these  rates  should  be  fixed  not  only 
with  reference  to  the  financial  results  and  the  financial  necessities  of  the 
Cincinnati,  New  Orleans  &  Texas  Pacific  Co.,  but  also  with  reference  to 
other  companies  whose  rates  are  necessarily  affected  by  these ;  otherwise 
stated,  the  Commission  should  establish  rates  which  are  just  and  reasonable 
for  the  section  in  which  they  jirevail ;  if  a  particular  company  is  so  situated 
that  it  can  make  a  handsome  profit  under  such  rates,  that  is  the  good  fortune 
of  that  company,  just  as  it  would  be  the  misfortune  of  some  other  company 
if  it  could  not  show  as  favorable  earnings. 

The  rate  from  Cincinnati  and  Loviisville  to  Chattanooga  has  been  the 
same  for  the  last  28  years.  The  distance  is  substantially  the  same,  and  this 
relation  in  rates  will  undoubtedly  be  maintained  in  the  future.  Whatever 
reduction  is  made  from  Cincinnati  will  be  met  by  corresponding  reductions 
from  other  Ohio  river  crossings.  Kates  from  Memphis  to  Chattanooga  are 
lower  by  a  fixed  differential  than  from  the  Ohio  river,  and  this  relation 
would  undoubtedly  be  jjrcserved,  and  perhaps  ought  to  be,  since  the  distance 
is  300  miles  as  ati'ainst  ■'>■)*')  iiiili's  from  ('iiicinnati. 


i!0(i  I;Al^^\A^    ruor.LKMS 

In  till'  oriiifiual  I'asc  the  Coimiiissioii  ordered  ivduetions  to  many  other 
points  ln'sidcs  t'liattanoof^a.  Wliili-  (liattanooya  is  the  only  sontliern  point 
of  destination  referred  to  in  these  coniphiiuts,  it  is  frankly  stated  that  the 
pnrpose  is  to  obtain  a  general  reduction  to  tliis  southeastern  territory;  and 
no  reason  is  ajiparent  why,  if  the  t'ouiniission  adheres  to  its  former  decision 
in  case  of  (."hattanooi;a,  it  ought  not  to  do  the  same  in  case  of  other  locali- 
ties in  this  territory.  It  will  be  renu'inhered  that  in  1!)().")  certain  reductions 
were  nuule  from  the  Ohio  river  to  Atlanta  without  any  corresponding  reduc- 
tions to  Chattanooga.  Originally,  the  same  rate  had  been  made  to  Atlanta 
from  Louisville  as  was  made  from  Baltimore.  After  the  ppening  of  the 
Cincinnati  Southern  this  same  rate  was  apjjjied  from  Cincinnati  to  Atlanta, 
and  the  rate  from  Cincinnati  to  C'hattanooga  was  constructed  by  nsing  the 
same  rate  per  mile,  altlu)Ugh  the  distance  was  shorter.  At  the  present  time 
the  rate  per  mile  is  greater  in  case  of  Chattanooga  than  in  case  of  Atlanta. 
The  defendants  say  that  the  present  rate  is  constructed  npon  the  proper 
basis,  and  that  the  reductions  made  to  Atlanta  could  not  be  applied  to  Chatr 
tanooga  without  undoing  what  was  accomplished  at  that  time,  for  the 
following  reasons  : 

The  reductions  of  1905  grew  out  of  the  claim  npon  the  part  of  Atlanta 
that  its  rates  from  the  north  were  too  high  in  comparison  with  Birming- 
ham and  AIt)utgomery.  By  that  readjustment  Atlanta  was  made  the  same  as 
Montgomery  and  the  difference  between  Atlanta  and  Birmingham  reduced. 

The  distance  from  Memphis  to  Birmingham  is  251  miles,  from  Mem- 
phis to  Chattanooga  300  miles,  from  Cincinnati  to  Chattanooga  336  miles. 
The  rate  from  Memphis  to  Chattanooga  has  always  been  somewhat  less 
than  that  from  Cincinnati,  in  recognition  of  the  shorter  distance,  and  the 
St.  Louis  &  San  Francisco  Railway  insists  that  the  rate  from  Memi)his  to 
Birmingham  shall  not  materially  exceed  the  rate  from  Memphis  to  Chat> 
tanooga,  which  seems  reasonable  in  view  of  the  fact  that  the  distance  is  50 
miles  shorter.  If,  now,  this  rate  from  Cincinnati  to  Chattanooga  is  re- 
duced, that  will  in  all  prol)ability  carry  with  it  a  reduction  from  Memphis 
to  Chattanooga,  which  will  involve  a  corresponding  reduction  from  Mem- 
phis to  Birmingham,  and  this  will  create  the  same  discrimination  out  of 
which  the  reduction  of  1905  came.  This  would  mean  a  reopening  of  that 
contest. 

It  must  also  be  remembered  that  any  reduction  from  the  north  to 
Atlanta  and  corresponding  territory  would  undoubtedly  be  followed  by 
similar  reductions  from  the  east  as  was  the  case  in  1905. 

It  is  apparent,  thei-efore,  to  make  any  considerable  change  in  this  rate 
from  Cincinnati  to  Chattanooga  will  work  a  lowering  in  rates  throughout 
this  entire  southern  territory,  or  will  produce  a  change  in  the  relation  of 
those  rates  which  now  seem  to  be  adjusted  upon  a  basis  fairly  satisfactory 
to  that  territory.  How  far  are  we  at  liberty  to  consider  all  this  in  fixing 
a  rea.sonal)le  rate  over  the  Cincinnati,  New  Orleans  &  Texas  Pacific?    It 


REASONABLE  RATES  207 

should  be  noted  that  Chattanooga  is  not  comjilaining  of  unfair  treatment 
as  compared  with  other  southern  points. 

Some  indignation  was  expressed  by  several  witnesses  upon  the  part  of 
the  city  of  Cincinnati  because  after  that  community  had  expended  this 
enormous  amount  of  money  in  the  construction  of  the  Cincinnati  Southern 
Railroad  that  property  was  not  more  devoted  to  the  interests  of  the  city  of 
Cincinnati.  If  that  city,  under  jaroper  legislative  authority,  had  seen  fit  to 
operate  its  railroad,  it  might  have  established  to  Chattanooga  whatever 
rates  it  saw  fit,  and  if  the  results  of  municipal  operation  had  been  as  favor- 
able as  the  present,  it  could  have  materially  reduced  those  rates  and  still 
obtained  a  fair  return  upon  its  investment.  Such  a  reduction  would  have 
cheapened  the  cost  of  this  freight  to  the  dealer  and  probably  in  a  degree 
to  the  customer,  and  so  might  have  benefited  the  ultimate  consuming 
public.  It  is  doiibtful  if  it  would  have  benefited  the  interests  of  Cincin- 
nati, since  the  rates  established  by  it  would  have  been  met  by  carriers 
serving  rival  communities,  and  the  relation  of  rates  would  have  continued 
the  same.  However  this  may  be,  the  city  has  parted  with  its  right  to 
operate  this  property,  and  the  matter  stands  exactly  as  though  this  road 
had  been  built  by  private  capital. 

In  the  Matter  of  Proposed  Advances  in  Freight  Rates  (9  I.  C.  C.  Rep., 
382)  the  Commission,  having  under  consideration  the  rates  on  grain  from 
Chicago  to  the  Atlantic  seaboard,  announced  that  the  interests  of  all  com- 
peting lines  must  be  considered  in  determining  the  reasonableness  of  those 
rates,  and  not  merely  that  line  which  could  handle  the  business  the 
cheapest.  In  the  Spokane  case  (15  I.  C.  C.  Rep.,  376)  the  same  subject  was 
considered  and  the  same  conclusion  reached.  The  last  affirmance  of  this 
doctrine  is  found  in  Kindel  v.  N.  Y.,  N.  H.  ^-  H.  R.  R.  Co.  (15  I.  C.  C. 
Rep.,  555),  in  which  the  rule  is  stated  by  Clark,  Commissioner,  as  follows  : 

"  In  the  Spokane  case  (15  I.  C.  C.  Rep.,  376)  we  held  that  the  reason- 
ableness of  a  rate  between  two  points,  served  by  two  or  more  carriers, 
could  not  be  determined  by  consideration  alone  of  that  line  which  is 
shortest  and  most  favorably  situated  as  to  operation,  earnings,  etc.,  but 
that  the  entire  situation  must  be  considered.  .  .  . 

"As  before  suggested,  we  can  not,  in  determining  competitive  rates, 
select  that  railroad  which  is  the  shortest  or  most  advantageously  situated 
and  limit  the  rate  to  what  would  allow  that  property  fair  earnings.  We 
must  consider  the  entire  situation  and  determine  a  reasonable  rate  not 
merely  with  reference  to  the  Union  Pacific,  but  with  reference  to  all  lines 
serving  these  Colorado  points  by  reasonably  direct  lines." 

We  have  no  doubt  as  to  the  correctness  of  this  princijtle  and  believe  it 
must  be  applied  here  within  proper  limits. 

The  Cincinnati  Southern  Railroad  is  a  single  trunk  line  without 
branches,  running  from  Cincinnati  to  Chattanooga.  The  main  line  of  the 
Louisville  &  Nashville  extends  from  Cincinnati  to  Louisville,  and  from 


2iiS  i;aii,\\.\\    riioi'.MOMS 

l,iMiis\illt'  to  N'aslnillr.  'rrallic  I'li'in  I.tmisv  illc  to  ( 'liat-taiiooga  passos 
tl»n>uj;h  Nashvillf,  ami  onci-  tlic  Nashville,  Chattanooj^a  &  St.  Louis  to 
("liattanoo^a.  For  thr  year  1!HI7  tlio  ^ross  cai'iiings  piT  mile  of  tlie  Ciii- 
ciiiiiati  SoiitliiTU  Wfii',  as  already  stated,  omt  .f'2(),()(l()  per- mile,  those  of 
the  Louisville  ^^  Nashville  about  .|11,()()0  per  mile,  and  of  the  Nashville, 
Chattanooga  &  St.  I^ouis  less  tluiu -f  10,000  per  mile.  The  same  year  tlie 
earuinsi's  of  that  portion  of  tlie  line  of  the  l.ouis\ille  iS^  Nashville  betw'eeu 
Ciueiunati  and  Louisville  were  lf'J."),00()  per  mile;  hetAveeii  Louisville  and 
Nashville  $;)0,000  pei-  mile  ;  tho.se  of  the  Nashville,  Chattanooga  &  St.  Louis 
between  Hickman  and  Cliattanooga,  a  distaiu^'  of  o'JO  miles,  over  f|20,000 
per  mile.  Kow,  in  adjusting  the  rates  of  the  Louisville  &  Nashville,  or  the 
Nashville,  Chattanooga  ^i  St.  I>ouis,  shall  t  he  Commission  consider  each  sec- 
tion of  the  road  by  itself,  or  shall  itcstablish  a  eommou  rate  for  the  whole? 

Commissiou  rates  are  nsually  the  same  for  all  liue.s,  both  main  line  and 
branches.  It  is  fair  that  tlie  main  line  shoidd  iu  a  degree  contribute  to 
the  support  of  the  branch  line,  for  the  l)ranch-line  business  when  it  reaches 
the  main  line  is  surplus  trafhc,  from  which  a  larger  profit  is  made.  It  is 
in  the  public  interest  that  rates  shall  be  so  adjusted  that  population  and 
industries  may  freely  diffuse  themselves.  It  hardly  seems  proper  to  fix  the 
rates  ujwn  the  Cincinnati  Southern,  which  is  really  a  main  line,  without 
any  reference  to  the  branch  lines  which  contribute  to  it. 

This  should  be  further  borne  in  mind.  Of  the  entire  traffic  handled  by 
the  Cincinnati,  New  Orleans  and  Texas  Pacific  in  the  year  1!)07  over  two- 
thirds  of  the  tonnage  was  delivered  to  it  by  its  connections  and  most  of  it 
hanled  as  a  through  transaction  from  Cincinnati  to  Chattanooga  or  the 
reverse.  Comparatively  little  traffic  originates  upon  this  railroad  between 
these  two  termini.  The  jiresent  large  earnings  may  be  due  to  the  fact  that 
the  Southern  Railway  is  able  to  turn  onto  this  road  large  amounts  of 
traffic  which  it  w^ould  exchange  with  some  other  railroad  but  for  its  inter- 
est in  the  Cincinnati  Southern.  If  the  city  of  Cincinnati  were  operating 
this  ))roperty  itself,  it  is  by  no  means  certain  that  the  aj^iareutly  undue 
profits  of  to-day  might  not  be  a  deficit. 

The  comi>lainants  nrge  that  the  Cincinnati  Southern  is  really  a  i)art  of 
the  Southern  Railway  system.  If  it  were  so  considered  the  gross  earnings 
per  mile  of  the  entire  system  would  be  less  than  those  of  either  the  Louis- 
ville &  Nashville  or  the  Nashville,  Chattanooga  &  St.  Louis. 

If  these  rates  are  to  be  established  with  reference  to  other  rates  in  the 
vicinity  it  becomes  pertinent  to  inquire  how  the  present  rates  com- 
pare with  other  rates  for  similar  distances  in  the  South.  Extensive  tallies 
have  been  furnished  by  the  defendants  instituting  such  comparisons,  and 
these  tal)les  have  been  to  some  extent  criticized  and  replied  to  by  the 
complainants. 

It  fairly  appears  that  the  rates  now  in  effect  from  Cincinnati  to  Chat- 
tanooga upon  thenumbei'ed  clas.ses  are  lower  than  similar  rates  pre.scribed 


I 


REASONABLE  EATES  209 

by  the  railroad  commissions  of  most  States  in  the  South.  They  are  as  low 
and  usually  lower  than  the  interstate  rates  made  by  southern  roads  for 
similar  distances. 

The  complainants  call  our  attention  to  rates  from  Cincinnati  to  Xash- 
ville.  The  distance  is  300  miles  and  the  r'ates  are  materially  lower  than 
those  from  Cincinnati  to  Chattanooga,  being,  first  class,  53  cents  as  against 
7G  cents,  and  sixth  class,  23  cents  as  against  30  cents.  But  this  Commis- 
sion has  found  {Chamber  of  Commerce  of  C/iaftanoor/a  v.  Southern  Ry.  Co., 
10  I.  C.  C.  Reji.,  Ill),  and  the  Federal  courts  have  found  (East  Tenn.,  Va. 
Sc  Ga.  Ry.  Co.  v.  /.  C.  C,  181  U.  S.  I.),  that  water  competition  influences 
these  rates  to  Nashville.  The  rate  from  Cincinnati  to  an  intermediate 
point  where  there  is  no  water  competition  is  higher  in  proportion  to  dis- 
tance than  those  to  Chattanooga.  Thus  the  first-class  rate  from  Cincin- 
nati to  Gallatin,  20  miles  north  of  Nashville,  is  78  cents. 

The  complainant  also  refers  to  rates  from  Virginia  cities  to  Atlanta 
which  are  less  per  ton-mile  than  those  in  question.  But  it  is  well  under- 
stood that  these  rates  are  materially  affected  by  water  competition,  and 
ordinarily  the  long-tlistance  rate  would  be  less  per  ton-mile  than  the  rate 
for  the  shorter  distance.  If  rates  from  Virginia  cities  south  for  distances 
of  from  300  to  350  miles  are  examined,  it  will  be  found  that  they  usually 
equal  or  exceed  the  Chattanooga  rates. 

The  complainants  urge  that  the  volume  of  traffic  in  this  territory  has 
increased  and  is  increasing,  all  of  which  should  make  for  lower  rates ;  and 
tills  is  certainly  true ;  but  it  must  also  be  borne  in  mind  that  the  cost  of 
operation  is  advancing.  In  the  past  railways  have  been  able  to  introduce 
various  economies  in  the  handling  of  their  business,  which  have  tended  to 
offset  the  added  cost  of  labor  and  sujiplies,  so  that  the  net  result  has  been 
that  the  increase  in  the  cost  of  transporting  a  ton  of  freight  1  mile  has  but 
slightly,  if  at  all,  increased.  It  is  doubtful  if  in  future  similar  economies 
can  keep  pace  with  advancing  prices. 

We  hesitate  at  this  time  to  make  widespread  and  far-reaching  reduc- 
tions in  rates  where  there  is  no  special  occasion  for  it  and  where  the  rates 
themselves  are  not  clearly  excessive. 

It  appears  from  the  findings  of  tlie  Commission  that  it  has 
always  refused  in  tlie  consideration  of  the  reasonableness  of  a 
rate  or  rates  to  consider  only  the  particular  carrier  making  the 
same  by  itself,  but  on  the  contrary  has  always  considered  the 
rates  in  a  particular  territory  or  the  rates  of  other  carriers  to  be 
affected  by  the  change  of  the  particular  rate  or  rates  in  question  ; 
and  we  think  it  fair  to  say  that  so  far  as  the  Commission  is  con- 
cerned there  has  been  a  uniform  policy,  public  policy  if  you  please, 
because  the  Connnission  rc[)resciits  the  Ignited  States  in  so  far 


i!l(i  i;AiJ.\VA\   i'Ja»j;j.E.M,s 


f 


;is  it  acts  within  tho  scopo  of  its  (lolegatod  aiitliority  in  the  estab- 
HshnuMit  of  rt'asonahlc  and  just  rates,  to  the  effect  that  it  will  not 
li\  rates  or  (Iclcnniiic  tiicii'  reasonableness  solely  upon  a  consid- 
ei'ation  of  the  [nuticular  carrier  whose  rates  are  directly  involved. 
We  think  this  court  may  take  judicial  knowledge  of  the  fact 
that  the  interstate  rates  pivscribed  for  the  transportation  of  ] 
freight  by  connnon  carrier  nnist  necessarily  be  more  or  less  inter- 
dependent, or  at  least  be  so  related  to  each  other  that  the  rate- 
making  [)ower  will  not  sini[)ly,  because  it  has  the  power,  fix  a  rate 
upon  a  single  line  of  railroads  which  will  necessarily  disorganize 
established  and  reasonabh?  rates  on  other  railroads  in  the  same 
territory.  All  rates  established  in  accordance  with  law  are  pre- 
sumed to  be  just  and  reast)nable.  It  is  for  this  reason  that  the 
rates  for  the  transportation  of  freight  of  other  carriers  in  the 
same  territory  may  be  looked  into  as  evidence  of  what  should  be 
a  just  and  reasonable  rate,  providing  conditions  are  similar.  We 
can  not  as  a  court  not  vested  with  the  power  to  fix  rates  say, 
beyond  question,  that  the  elements  which  the  Commission  took 
into  consideration  in  fixing  the  schedule  complained  of  were  im- 
proper for  the  Commission  to  consider,  and  therefore  can  not 
conclude  that  the  Commission  based  a  schedule  of  rates  upon 
improper  grounds. 

It  was  said  by  the  Supreme  Court  in  Texas  jf"  Pacific  Railway 
V.  I.  a  a,  162  U.  S.,  233, 

that  the  purpose  of  the  act  is  to  jn-omote  and  facilitate  commerce  by  the 
adoption  of  regulations  to  make  charges  for  transportation  just  and  reason- 
able, and  to  forbid  undue  and  unreasonable  jireferences  or  discriminations  : 
that,  in  passing  upon  questions  arising  under  the  act,  the  tribunal  apjiointed 
to  enforce  its  provisions,  whether  the  Commission  or  the  courts,  is  empow- 
ered to  fully  consider  all  the  circuinstances  and  conditions  that  reasonably 
apply  to  the  situation,  and  that,  in  the  exercise  of  its  jurisdiction,  the 
tribunal  may  and  should  consider  the  legitimate  interests  as  well  of  the 
carrying  companies  as  of  the  traders  and  shippers.  .  .   . 

Under  the  second  proposition  we  can  not  disturb  the  order  of 
the  Commission  on  the  theory  that  it  fixed  rates  so  high  as  to  be      , 
violative  of  the  fifth  amendment  to  the  Constitution,  unless  it      I 
shall  clearly  appear  to  us  that  the  constitutional  rights  of  the 


I 

it' 


REASONABLE   RATES  211 

shippers  were  invaded  thereby.    The  fixmg  of  the  schedule  of 
rates  complained  of  was  a  legislative  act. 

Munn  V.  Illinois,  96  U.  S.,  113. 

Pell  V.  Chicago  N.  W.  Ry.  Co.,  94  U.  S.,  164. 

Express  Cases,  117  U.  S.,  1. 

C.  M.,  etc.,  Ry.  v.  Minnesota,  134  U.  S.,  418. 

Reagan  v.  Farmers'  Loan  (f  T.  Co.,  154  U.  S.,  362. 

St.  L.  cj-  S.  F.  Ry.  Co.  v.  aHl,  156  U.  S.,  649. 

a,  K  0.  i-  T.  P.  Ry.  Co.  v.  I.  C.  C,  162  U.  S.,  184. 

T.  ^  P.  Ry.  V.  /.  O.  C,  162  U.  S.,  197. 

L  C.  C.  V.  Cincinnati  Ry.  Co.,  167  U.  S.,  479. 

Railroad  Commission  Cases,  116  U.  S.,  307. 

Smyth  V.  Ames,  169  U.  S.,  515. 

Chord  Y.  L.  ^  N.  R.  R.  Co.,  183  U.  S.,  483. 

Alpers  V.  City  of  San  Francisco,  32  Fed.,  503. 

So.  Pac.  Co.  V.  R.  R.  Commissioners,  78  Fed.,  236. 
1         New  Orleans  Water  Works  Co.  v.  Netv  Orleans,  164  U.  S.,  471. 
I         Atlantic  Coast  Line  v.  North  Carolina  Corporation  Co  /?i. ,  2  0  6  U.  S . ,  1 . 

I  And  while  we  are  of  the  opinion  that  our  power  to  review  the 
I  order  of  the  Commission  fixing  a  schedule  of  rates  is  coextensive 
with  the  limits  of  the  protectmg  shield  of  the  Constitution,  still 
it  must  clearly  appear  that  such  protection  in  some  degree  has 
been  taken  away.  The  Commission  found  that  the  rates  com- 
plained of  were  not  clearly  excessive.  Much  less  are  we  able  to 
,  find  that  the  rates  authorized  by  the  Commission  in  the  order 
complained  of  and  which  were  a  reduction  of  the  former  rates 
are  clearly  excessive.  In  making  this  statement  we  are  fully 
aware  of  the  allegation  of  the  bill  as  to  the  net  earnings  of  the 
C,  N.  O.  &  T.  P.,  and  the  whole  case  as  to  the  excessive  feature 
of  the  rates  fixed  by  the  Commission  is  almost  entirely  based 
upon  the  earnings  of  the  C,  N.  O.  &  T.  P.  While  earnings  may 
be  considered  in  the  fixing  of  a  reasonable  rate  to  be  charged  by 
a  carrier  for  the  transportation  of  freight,  rates  necessarily  can 
not  be  based  upon  earnings  alone.  This  is  made  clearly  to  appear 
when  we  consider  that  a  just  and  reasonable  rate  is  one  which 
is  just  to  the  carrier  and  to  the  sliip[)('r.    It  is  a  rate  which  yields 


■^\-l  \l\\\A\\\    I'KOI'.LK.MS 

to  llic  canicr  a  fair  return  ujxtii  llii'  \aliu'  of  the  property  em- 
plou'il  ill  llu'  i)iil)lic  sfr\  ice,  and  it  is  a  rate  wliieh  is  fair  to  the 
shipper  for  the  service  rendered;  and  when  this  rati'  is  estabHshed 
if  it  resuhs  in  hiro'e  prolits  to  the  tariier  the  carrier  is  fortunate 
in  its  biisiui'ss,  and  if  it  resuhs  in  a  h)ss  of  earning  power  so  that 
I  hi'  hiisiiu'ss  of  the  I'arrier  is  unprotitable  the  carrit-r  is  unfortu- 
nate, lint  the  rate  may  not  be  h)\vered  or  raised  merely  upon 
the  ground  that  the  carrier  is  either  making  or  losing  money, 
pro\  idiiig  always  the  rate  is  a  reasonable  and  just  rate.  Indeed, 
it  has  been  ludd  that  the  earning  power  of  the  rate  is  one  of  the 
least  considerations  in  iixing  a  just  and  reasonable  rate. 

Canada  Northern  II.  11.  Co.  v.  International  Bridye  Co..,  L.  K. 
8  A  pp.  Cases,  728. 

Board  of  Railroad  Comni.  v.  /.  C.  R.  R.  Co.,  20  I.  C.  C.  Rep., 
181. 

Being  satisfied  that  the  (,'onnnission  did  not  err  in  taking  into 
consideration  the  grounds  they  did  in  fixing  their  schedule  of 
rates,  and  not  being  clearly  satisfied  that  the  rates  themselves 
are  so  high  as  to  violate  tlie  constitutional  rights  of  the  shippers, 
we  are  of  the  opinion  that  the  bill  must  be  dismissed. 

And  it  is  so  ordered. 

Aechbald,  Judfje,  dissenting : 

There  can  be  no  serious  question  as  to  the  conclusion  which 
would  have  been  reached  by  the  Commission  had  they  confined 
themselves  to  the  determination  of  what  was  a  just  and  reason- 
able rate  from  Cini-innati  to  Chattanooga  by  the  Cincinnati 
Southern,  without  regard  to  the  effect  upon  other  roads.  This 
was  gone  into  at  length  in  1894,  and  the  60-cent  schedule,  which 
is  now  contended  for,  sustained. ^  But  as  the  law  then  stood 
there  was  no  authority  in  the  Commission  to  fix  future  rates, 
and  its  action  was  therefore  held  of  no  effect.^  But  even  with  the 
lapse  of  time  and  the  change  of  conditions,  the  issue  as  is  recog- 
nized by  the  Commission  is  the  same,  and  the  same  conclusion 

1  lU'priiited  at  lu'.arl  of  this  chapter. 

2  Deci.sioii  reijriiited  in  this  chapter,  supra. 


REASONABLE  RATES  213 

would  confessedly  have  been  reached  except  as  they  were  in- 
fluenced by  a  regard  for  the  necessities  of  other  roads.  "  If  it 
is  our  duty,"  says  Commissioner  Prouty  in  the  report,  "  to  take 
this  railroad  by  itself  and  to  determine  the  reasonableness  of 
these  rates,  by  reference  to  cost  of  construction,  cost  of  mainte- 
nance, and  profit  upon  the  investment,  we  think  the  complainants 
have  established  theii'  case,  and  that  these  rates  ought  fairly  to 
be  reduced  by  as  great  an  amount  as  was  formerly  found  rea- 
sonable by  this  Commission."  Unfortunately,  however,  for  the 
complainants  this  view  did  not  prevail.  It  was  contended  by  the 
railroad  company  that  the  rates  should  be  fixed  not  only  with 
reference  to  the  final  results  to  itself  and  its  own  financial  neces- 
sities, but  also  with  reference  to  other  companies  whose  rates 
were  necessarily  affected  thereby ;  or,  in  other  words,  that  the 
Commission  should  establish  rates  which  would  be  just  and  rea- 
sonable for  the  whole  section  of  territory  in  issue,  and  that  if 
a  particular  carrier  was  so  situated  that  it  could  make  a  hand- 
some profit  it  was  to  be  recognized  as  a  piece  of  good  fortune 
with  which  the  Commission  was  not  to  interfere.  Adopting 
this  view,  which  had  also  been  followed  in  other  cases  {in  re 
proposed  advance  in  freight  rates,  9  Inter.  Com.  Com.  Rep.,  382; 
Spokane  v.  North  Pac.  R.  11.,  15  Inter.  Com.  Com.  Rep.,  376  ; 
Kindel  v.  New  York,  Neio  Haven  ^  Hartford  R.  R.,  15  Inter. 
Com.  Com.  Rep.,  555),  it  was  accordingly  held  that  the  reason- 
ableness of  the  rate  between  points  served  by  two  or  more  Imes 
could  not  be  determined  by  reference  to  that  line  alone  which 
was  shortest  and  most  favorably  situated  with  respect  to  opera- 
tion and  earnings,  and  the  rate  limited  thereby ;  but  that  the 
entire  situation  was  to  be  considered,  and  a  rate  fixed  which 
would  be  reasonable  with  respect  to  all  the  lines  directly  serving 
the  points  involved.  That  rates  for  similar  distances  on  other 
lilies  similarly  conditioned  may  be  referred  to,  to  assist  in  deter- 
mining what  is  fair  and  reasonable  in  any  case,  is  clear.  And  it 
is  no  doubt  proper  also  to  take  into  account  the  effect  on  rates 
upon  freight  moving  to  and  from  other  points  beyond  those 
immediately  in  view.  But  that,  in  my  judgment,  is  as  far  as  it 
is  permitted  to  go.    There  is  no  right,  as  I  hjok  at  it,  to  consider 


•2\\  KAILW.W     rKor.l.KMS 

the  t'lTi'ct  of  tlu'  ratr  or  rates  to  he  t'slal)lislu'(l  on  those  of  other 
roads,  hi'tween  the  same  points,  or  to  iiiaintaiii  siu-h  rates  at  a 
ligure  whieli  is  necessary  to  nu'ct  the  net'ds  of  those  roads.  And 
so  far  as  the  order  of  the  Connnissioii  was  iiuhiced  by  any  sneh 
idea,  it  lan  not  be  snstained. 

If  the  Cineiinuiti  Southern  was  the  only  line  from  Cincinnati 
to  Chattanooga  the  rate,  of  course,  so  far  as  it  was  not  a  joint 
rate,  would  be  fixed  with  reference  to  that  road  alone.  And  if 
it  was  a  line  that  was  costly  to  build,  or  that  could  not  be  eeo- 
noniically  run,  this  would  operate  to  increase  the  rates,  and  tlie 
shipper  would  have  to  pay,  to  correspond.  But,  on  the  other 
liand,  if  the  reverse  of  this  was  true,  and  the  road  was  neither 
an  expensive  one  to  construct,  niahitain,  or  run,  the  shipper 
would  clearly  be  entitled  to  the  l)enefit  of  these  conditions  and 
to  the  lower  rates  necessarily  to  ensue.  So,  also,  if  this  favored 
road  was  the  first  in  the  field,  and  other  roads  had  come  in  after 
it  was  built,  it  certainly  would  not  be  contended  that  with  the 
introduction  of  new  and  additional  facilities  the  lower  rates  pre- 
vailing on  the  more  favored  line  could  be  raised  to  meet  the 
necessities  of  others  not  so  well  placed.  It  is  not  to  be  thought 
of  that  the  construction  of  a  second  or  third  road  should  be 
made  the  basis  for  higher  rates.  The  standard  would  be  that  of 
the  original  and  most  favored  line.  But  what  difference  does  it 
make  whether  tlie  road  which  can  afford  the  best  rate  is  the 
first  or  tlie  last  to  be  built  ?  It  is  the  condition  at  the  time  the 
rate  is  fixed  that  controls.  The  shipper  is  entitled,  to  the  benefit 
of  any  advance  in  transportation  facilities  that  may  be  made  and 
is  not  to  be  tied  down  to  the  unprogressive  and  outdistanced 
past.  The  supposed  advantage  in  competing  lines  between  the 
same  points  becomes  a  detriment  if  rates  are  to  be  kept  up  to 
help  the  weakest  road. 

The  Cincinnati  Southern  extends  in  a  short  and  direct  route 
due  south  from  Cincinnati  to  Chattanooga  without  branches  336 
miles.  It  was  expensive  to  build,  and  the  cost  of  operation  and 
maintenance  is  high.  But  its  net  earnings  are  nevertheless  large, 
amounting  to  some  44  per  cent  on  the  capital  stock.  The  route 
between  the  same  points  by  way  of  the  Louisyille  &  Nashville 


REASONABLE  EATES  215 

and  the  Nashville,  Chattanooga  &  St.  Louis  roads  is  a  third 
longer,  or  450  miles,  and  both  of  these  roads  have  more  or  less 
unremunerative  branch  lines.  And  yet  the  Commission  have  not 
only  put  the  two  routes  on  an  equality,  but  have  even  considered 
the  influence  of  unprofitable  branches,  which  have  to  be  taken 
care  of,  fixing  a  rate  which  shall  be  fair  for  the  whole  system, 
and  not  simply  for  the  immediate  section  of  road  which  is  in- 
volved. This,  m  my  judgment,  they  had  no  right  to  do.  The 
shipper  is  entitled  to  a  just  and  reasonable  rate,  having  regard 
to  the  service  which  is  to  be  rendered  by  the  carrier  that  is  to 
perform.  And  this  service  is  largely  to  be  measured  by  the 
facilities  for  economically  rendering  it,  which  are  possessed  by 
that  particular  road.  It  is  not  to  be  augmented  or  kept  up, 
beyond  what  is  fair  and  just,  by  the  consideration  of  what  some 
other  road,  not  so  favorably  situated,  may  need. 

The  order  of  the  Commission,  being  based  upon  mistaken  and 
erroneous  grounds,  is  therefore  invalid  and  should  be  so  declared. 
(Southern  Raihoay  v.  St.  Louis  Hay  ^  G-rain  Co.,  214  U.  S.,  297; 
Inter.  Com.  Com.  v.  Stickney,  215  U.  S.,  98 ;  Southern  Pacific 
Railway  v.  Inter.  Com.  Com.,  219  U.  S.,  833.)  And  the  case 
should  be  thereupon  remanded  to  the  Commission  in  order  that  a 
rate  may  be  fixed  which  shall  be  just  and  reasonable  as  respects 
the  respondent  carrier,  by  whom  the  services  are  to  be  performed. 
This  does  not  take  from  the  Commission  the  right  to  say  what 
that  rate  shall  be.  INIuch  less  does  it  involve  the  determination 
of  the  rate  by  the  Court.  It  merely  disposes  of  the  rate  which 
has  been  mistakenly  made,  as  preliminary  to  a  new  consideration 
of  it  by  the  Commission  upon  correct  and  proper  grounds.  {Cin., 
N.O.^T.  P.  R.  R.  V.  Inter.  Com.  Com.,  162  U.  S.,  184,  238,  239; 
Southern  Raihoay  v.  St.  Louis  Hay  ^  Grain  Co.,  214  U.  S.,  297.) 

I  therefore  dissent  from  the  judgment  of  the  court,  sustaining 
the  demurrer  and  dismissing  the  bill. 

Mack,  Judge : 

I  concur  in  the  above  dissent. 


VII 


COMMERCIAL  COMPETITION:   KATES  ON  SALT 

IxAiLKoAD  C(».mmissi(»m;i;s  of  Kansas  r.  Apcmison, 
Toi'KKA  t^  San  TA  Fk  Rauavav  i 


I'ltorTV,  C}i(tirm<iH  : 

Thi.s   proceeding  involves  the   relative  distributive   rates   on 
salt  from  the  Kansas  as  compared  with  the  Michigan  field  into 


_           '.^  1 . — >          1 

/^ 

^r^=^^^ 

/ 

if /A     \\ 

{/ 

/   -y 

r              y    s. 

'^> 

/•Manistee     (        ^ 

,     WISCONSIN 

tLudin^tOTi  [    /    \ 

^^^                                                    \ 

8/ 

7 

\                       City    \ 
MICHIGAN        J 

/              DctroitfJ-J 

^         U        Milwaukee^ 

\               ^^                        ^---"^^^--^^^O 

\>       ,,   .          ^.^^'•'C'Zt/j^onJx          "^^^^ 

.^,^^. u^,_^^ 

U/e3  3/ome5^^-^2)afcn/>o/:^^'           ^^-^ 

^^^■^^/f 

NEBRASKA  x\              / 3^,^,.       ^^^^"""'^  / 

i 

/               i    OHIO 

'a/                    ^       y^MKiohuk         / 

i  y^ 

! 

/[INDIANA    !                    1 

KANSAS    /        "K..^^^               \      / y^ 

! 

: 

1 

Mutchinso,,           i  MISSOURI^'" 

j 

intermediate  territory.     Tlie  situation  will  be  best  understood 
by  a  glance  at  the  accompanyuig  map. 

The  Kansas  salt  field  extends  about  120  miles  north  and  south 
by  some  60  miles  east  and  west.    Hutchmson  is  situated  near  the 

1  Decided  February  5,  1912.    22  I.  C.  C.  Hep.  407-419.    The  original  case, 
5  hltm,  209,  was  reprinted  in  the  first  edition  of  Railway  Problems,  p.  190. 

216 


1 


COMMERCIAL  COMPETITION  217 

center  of  this  field  and  may  be  selected  as  typical  of  the  whole 
field.  Kates  from  all  points  of  production  in  this  field  to  the  dis- 
puted territory  are  the  same,  there  being  therefore  no  competition 
in  the  rate  between  different  points  of  production  in  this  field. 

The  Michigan  field  covers  nearly  the  entire  lower  penmsula  of 
the  state  of  Michigan,  extensive  salt  works  being  located  at  Lud- 
ington,  IManistee,  Bay  City,  Port  Huron,  Detroit,  Saginaw,  and 
some  other  points.  This  field  is  therefore  more  extensive  than 
the  Kansas  field.  Rates  at  the  present  time  are  substantially  the 
same  from  all  points  in  the  jNIichigan  field  to  the  destinations  in 
controversy ;  but,  owing  to  conditions  of  transportation,  which 
will  be  later  referred  to,  there  has  been  in  the  past  active  com- 
petition in  rates  between  the  INIichigan  points  of  production  them- 
selves, which  has  produced,  at  times,  differences  in  those  rates, 
some  vestiges  of  which  still  remain. 

It  will  be  seen  by  reference  to  the  map  that  as  salt  moves  from 
the  Kansas  field  east  and  northeast  it  meets  salt  moving  from  the 
Michigan  field  in  the  opposite  direction,  the  debatable  ground 
being,  roughly  speaking,  between  tlie  Mississippi  and  the  Missouri 
rivers.  The  cost  of  producmg  salt  in  Kansas  and  Michigan  is  sub- 
stantially the  same.  The  quality  of  the  salt  is  about  the  same, 
although  this  record  indicates  tliat  at  the  same  price  the  Michi- 
gan salt  sells  somewhat  more  freely.  Whether,  therefore,  this 
intermediate  territory  shall  be  supplied  from  Kansas  or  Michigan 
depends  mainly  upon  the  rate  of  transportation. 

This  proceeding  is  instituted  by  the  Kansas  railroad  commis- 
sion in  the  interest  of  the  salt  producers  of  that  state,  and  the 
complaint  is : 

1.  That  the  rates  from  the  Kansas  field  into  this  disputed 
territory  are  unreasonable  in  and  of  themselves. 

2.  That  these  rates  are  unduly  high  in  comparison  with  corre- 
sponding rates  from  the  Michigan  field. 

Certain  salt  producers  in  Kansas  have  intervened  in  favor  of 
the  prayer  of  the  complainant,  and  certain  producers  in  the  Michi- 
gan field  against  it,  so  that  the  whole  situation  is  before  us. 

In  support  of  its  contentions  the  complainant  relies  first 
and  largely  upon  the  fact  that  un<ler  the  present  rates  Kansas 


•iis  l;.\Il.\^A^■  i'koi'.lkms 

prochictM's  arc  not  (Uilv  iiiialiK'  to  iiid'casc  tlicir  [)r()(liu;li()ii,  but  can 
not  I'M'U  inaiiitaiii  llial  of  rrcciit  ycais,  while  [)r()(luction  in  the 
rival  Mii'luL^-an  I'u'M  is  inci'casin^- :  ami  this  phase  of  the  ease 
niav  he  relerit'd  to  hcl'orc  proccechii^'  to  a  discussion  of  the  rates 
thcnisrlvcs. 

This  record  does  not  show  in  a  very  satisfactory  way  the  rela- 
tive produetion  ol  thesis  two  liidds,  past  and  present.  When  this 
same  matter  was  before  the  Connnission  in  1891  it  appeared  that 
product  ion  iu  the  Kansas  field  was  about  1,000,000  barrels  an- 
nually, as  eouipared  with  4,000,000  barrels  in  the  Michigan  field, 
while  it  now  a[)[)ears  that  in  1909  the  corresponding  iigures  were 
2,500,000  Kansas,  6,000,000  Michigan.  If,  therefore,  we  compare 
the  present  with  20  years  ago  the  percentage  of  development  has 
been  in  favor  of  Kansas, 

It  is  said,  however,  that  in  1891  the  Kansas  field  was  in  its 
infancy,  and  this  record  indicates  that  for  the  last  few  years  there 
has  been  little  increase  in  the  Kansas  field,  while  Michigan  pro- 
duction has  shown  a  substantial  advance.  It  is  suggested  that 
this  is  due,  not  to  any  undue  advantage  which  Michigan  enjoys 
into  this  territory,  but  rather  to  the  fact  that  other  sources  of 
production  have  been  developed  to  the  south  and  west  of  Kansas, 
which  have  limited  its  market  in  those  directions. 

This  Commission  has  often  said  that  it  can  not  require  of  car- 
riers the  establishment  of  rates  which  will  guarantee  to  a  shipper 
the  profitable  conduct  of  his  business.  The  railway  may  not  im- 
pose an  unreasonable  transportation  charge  merely  because  the 
business  of  the  shii){)er  is  so  profitable  that  he  can  pay  it;  nor, 
conversely,  can  the  shipper  demand  that  an  unreasonably  low 
charge  shall  be  accorded  him  simply  because  the  profits  of  his 
business  have  shrunk  to  a  point  wdiere  they  are  no  longer 
sufficient. 

The  effect  of  a  rate  upon  commercial  conditions,  whether  an 
industry  can  exist  under  particular  rates  or  a  particular  adjust- 
ment of  rates,  are  matters  of  consequence,  and  facts  tending  to 
show  these  cinaimstances  and  conditions  are  always  pertinent. 
But  they  are  only  a  single  factor  in  determining  the  fundamental 
question.    A   narrowing  market,   increased   cost  of  production, 


COMMERCIAL  COMPETITION  219 

overproduction,  and  many  other  considerations  may  render  an 
industry  unprofitable,  without  showing  the  freight  rate  to  be 
unreasonable. 

A  reduction  in  the  rate  on  salt  from  the  Kansas  field  to  these 
points  in  controversy  would  not  increase  to  any  appreciable  ex- 
tent the  total  amount  of  salt  consumed,  but  a  reduction  from  the 
Kansas  field  with  no  corresponding  change  from  the  Michigan 
field  would  throw  the  business  to  the  complaining  interests. 
The  question  is  not  what  rate  the  traffic  will  bear,  for  the  rate  is 
already  sufficiently  low  to  move  tlie  traffic  to  its  limit  from  either 
Kansas  or  Michigan,  but  is  rather  one  of  relative  adjustment. 
Kansas  shippers  have  a  right  to  demand  of  these  defendants  who 
serve  them  rates  which  are  first  of  all  reasonable  in  and  of  them- 
selves, and,  next,  rates  which,  in  so  far  as  these  defendants  can 
properly  control  the  situation,  are  fairly  adjusted  with  respect  to 
these  rival  fields  of  production. 

The  inherent  reasonableness  of  the  rates  in  controversy  will 
be  first  considered. 

The  original  complaint  directed  attention  especially  to  the  rate 
from  the  Kansas  field  to  St.  Louis.  That  rate  then  was  and 
now  is  13|-  cents  per  100  pounds  for  a  distance  of  approximately 
500  miles.    Is  this  unreasonable  per  se  ? 

Salt  is  very  desirable  traffic  from  a  transportation  standpoint. 
It  loads  heavily,  is  not  liable  to  loss  or  damage  in  transit,  can 
be  handled  at  the  convenience  of  the  carrier,  and  affords  a  uni- 
form business.  Its  value  is  comparatively  little,  being  from  t|1.50 
to  -f  2  per  ton  at  the  point  of  production.  While  not  consumed 
as  largely  as  coal,  cement,  brick,  and  similar  commodities,  and 
while  therefore  the  freight  rate  is  not  so  noticeable,  it  is  an  article 
of  universal  and  necessary  consumption.  All  these  considerations 
call  for  a  low  rate  of  transportation,  and  have  been  repeatedly 
recognized  by  this  Commission.  It  is  also  true  that  the  ability 
of  a  particular  producer  to  sell  in  a  given  market  has  depended 
largely  upon  the  cost  of  transportation,  and  this  in  turn  has 
operated  to  force  down  rates  generally,  so  that  salt  rates  in  this 
territory,  certainly,  have  been  established  by  the  voluntary  action 
of  the  carriers  at  a  low  level.    Notwithstanding,  however,  all  these 


1>'J0  KA11.\\A\     I'KOI'.LKMS 

CDnsicU'nitioiis  whit'li  make  tnr  a  low  cliaroc  in  the  handling  of 
this  oonniuulity,  wo  are  unable,  upon  any  theory,  to  hokl  that  a 
rate  whieh  pays  only  5  mills  per  lon-uiile  is  unreasonable  in  and 
of  itself.  While  this  record  shows  that  lowei'  rates  liavo  been 
maintained  in  the  past  luuU'r  stress  t)f  eompetitiou  and  are  in  some 
eases  lu'ing  maintained  to-day,  and  while  if  a  carrier  mahitains  a 
lower  rate  in  favor  of  one  locality,  it  may  perhaps  be  required  to 
accord  similar  treatment  to  some  other  locality,  we  can  not  hold 
that  the  maintenance  of  this  rate  is  inherently  unreasonable. 

The  rates  established  by  the  state  commissions  in  the  two 
states  through  which  this  transportation  is  mainly  conducted 
are  instructive.  They  can  not  be  given  for  distances  as  great  as 
that  involved  in  the  St.  Louis  rate,  but  for  400  miles  they  are: 
Missouri,  151^  cents;  Kansas,  15^  cents. 

While  the  attack  of  the  complaint  is  maiidy  directed  against 
the  St.  Louis  rate,  the  intervening  petitions  put  in  issue  rates 
from  the  Kansas  field  to  jNIississippi  river  crossings  north  of 
St.  Louis,  and  these  should  also  be  referred  to. 

It  will  be  noted  from  the  map  that  Hutchinson  lies  nearly  du(; 
west  of  St.  Louis.  Since  the  course  of  the  Mississippi  river  is 
nearly  north  and  south,  it  follows  that  the  upper  crossings  are 
farther  from  the  Kansas  field  in  an  air  line  than  is  St.  Louis, 
and  although  the  actual  mileage  from  Hutchinson  to  some  of  the 
more  northerly  crossings  is  less  than  to  St.  Louis,  the  average 
from  the  entire  Kansas  field  would  ordinarily  be  greater.  Hav- 
ing reference  to  distance,  therefore,  the  rate  to  the  upper  cross- 
ings might  w^ell  be  somewhat  higher  than  to  St.  Louis.  Those 
rates  are  the  same  to  Hannibal  and  Quincy,  15  cents  to  Keokuk 
and  Fort  Madison,  and  18  cents  to  Burlington,  Davenport,  Clin- 
ton, and  I)u])uque.  The  distance  from  Hutclimson  to  Dubuque 
is  610  miles,  as  compared  with  500  to  St.  Louis. 

Considered  as  a  whole,  the  increase  to  the  upper  crossings 
where  it  occurs  seems  to  be  fairly  justified  by  an  increase  in 
distance  oyer  St.  J>ouis,  and  we  hold,  with  respect  to  all  these 
Mississippi  river  rates,  tliat  they  are  not  unreasonable  per  se. 
Considering  the  whole  situation,  they  are  perhaps  sufficiently 
high,  but  can  not  be  pronounced  excessive. 


COMMEIiCIAL   COMPETITION  221 

This  proceeding  also  puts  in  issue  rates  at  interior  points  in 
Iowa  and  Missouri,  and  tliese  rates  are  sometimes  slightly  higher 
than  those  to  the  Mississippi  river,  although  the  distance  is  some- 
what less. 

While  the  reasonableness  of  rates  from  the  Kansas  field  to 
pomts  west  of  the  Mississippi  river  is  put  in  issue,  but  little,  if 
any,  attention  was  directed  to  those  rates.  They  are  in  many 
cases  blanket  rates,  the  same  from  both  the  Kansas  and  the 
Michigan  fields,  so  tliat  the  same  rate  applies  through  a  consid- 
erable variation  in  distance.  It  is  quite  probable  that  some  of 
these  rates  might  upon  detailed  examination  be  found  excessive, 
but  there  is  nothing  in  this  record  upon  which  we  can  base  an 
intelligent  opinion,  nor  do  we  feel  called  upon  at  this  time  to 
examine  the  rate  from  the  Kansas  field  to  each  one  of  these 
numerous  points.  Without  prejudice  to  the  riglit  to  find  upon 
fuller  investigation  that  some  of  these  charges  may  be  excessive, 
we  do  not  at  tliis  time  find  that  the  charge  of  unreasonableness 
IS  sustained  in  any  of  the  cases  covered  by  this  complaint. 

Wliile  the  Kansas  interests  have  alleged  that  these  rates  to 
the  Mississippi  river  fiom  the  Kansas  field  are  excessive  and 
have  insisted  upon  that  claim,  it  is  evident  that  this  is  not  the 
real  objective  point.  The  Kansas  producer  is  interested  not  in 
the  absolute  rate  from  his  field  to  this  intermediate  territory,  but 
in  the  relative  rate  made  from  his  plant  as  compared  with  that 
from  the  plant  of  his  Michigan  competitor.  As  already  suggested, 
a  few  cents  more  or  less  in  the  rate  from  the  Kansas  field  does 
not  increase  or  diminish  the  total  amount  of  salt  consumed,  but 
it  may  absolutely  determine  whether  that  salt  shall  be  produced 
in  Kansas  or  in  Michigan.  The  real  purpose  of  this  proceeding  is 
to  secure  a  readjustment  of  rates  between  these  competing  fields. 

At  the  date  when  this  complaint  was  filed  rates  upon  pack- 
age salt  from  Detroit  to  St.  Louis  were,  for  local  consumption, 
IH  cents ;  when  for  beyond,  8^  cents.  There  was  also  a  rate  on 
imlk  salt  of  7^  cents.  The  distance  from  Detroit  to  St.  Louis  is 
almost  exactly  the  same  as  from  Hutchinson,  from  which  the 
lowest  available  rate  was  13|-  cents;  and  the  Kansas  producer 
insisted  that  if  these  rates  wer(^  maintained  from  Detroit,  then 


till-  rati'  I'rom  tlu'  Kansas  lii'lil  was  too  liii;ii  and  slionld  hv  ivdnccd. 
'V\\o  St.  Lonis  rati'  was  made  tlir  jtrincipal  i)oinl  of  attack,  and 
wi'  niav  properly  in(|nirt'  wlictlicr  llic  rates  in  el'teet  to  this  mar- 
ket ti'oni  Detroit  and  from  the  Kansas  lield  disei'iniinato  in  favor 
of  Di'troit. 

Since  the  tiling-  of  the  complaint,  rates  from  Detroit  liave  been 
advaiu'ed  and  now  are  npon  package  salt  ll.V  cents  local,  10  cents 
proportional ;  upon  bulk  salt  9  cents.  Our  discussion  will  be 
addressed  to  the  present  rates. 

The  defendants  urge  at  the  outset  that  whether  the  adjustment 
be  proper  or  improper  undue  discrimiiuition  can  )U)t  be  aihrmed, 
for  the  reason  that  the  carriers  which  make  the  rate  from  the 
Kansas  fiehl  are  not  the  same  as  those  which  make  that  from 
Detroit.  It  is  well  understood  that  if  the  same  carrier  serving 
both  Kansas  and  Detroit  names  a  lower  rate  for  substantially 
the  same  distance  from  Detroit  than  from  Kansas,  it  nnist  be 
prepared  to  justify  that  discrimination,  but  if  carrier  A  serves 
St.  Louis  from  the  Kansas  field,  while  carrier  B  serves  that 
market  from  the  Detroit  field,  then  carrier  A  is  not  guilty  of 
discrimhiation  because  it  declines  to  meet  the  rate  established 
by  carrier  B. 

The  answer  of  the  complainants  to  this  claim  of  the  defendants 
is  that  the  Wabash  Railroad,  which  is  the  short  Ime  from  Detroit 
to  St.  Louis,  and  which  names  the  low  rate  between  those  points, 
also  extends  from  Kansas  City  to  St.  Louis  and  joins  m  the  rates 
from  the  Kansas  field  to  the  same  market.  They  pouit  to  the 
previous  decisions  of  this  Commission  in  which  we  have  held 
that  a  carrier  which  is  party  to  a  joint  rate  may  be  held  responsi- 
ble for  that  rate  and  for  any  discrimijiation  which  results  from 
its  maintenance. 

Two  questions  would  seem  to  be  open  to  inquiry : 

(a)  Is  the  Wabash  Railroad  justified  in  naming  its  present 
rates  from  Detroit  to  St.  Louis  ? 

(h)  Does  that  carrier,  or  can  that  carrier  so  control  the  rate 
from  the  Kansas  field  to  St.  Louis  that  it  should  be  held  answer- 
able for  the  discrimination  which  results  from  a  failure  to  reduce 
that  rate  to  correspond  with  the  Detroit  rate? 


COMMERCIAL  COMPETITION  223 

It  will  be  seen  upon  a  reference  to  the  map  that  the  salt- 
producing  points  of  ]\lichigan  are  located  mainly  upon  the  water. 
They  are,  upon  the  western  side  of  the  peninsula,  Manistee  and 
Ludington  upon  Lake  INIichigan,  and  upon  the  eastern  side,  Bay 
City,  Port  Huron,  Wyandotte,  and  Detroit  upon  Lake  Huron. 
It  was  said  in  testimony  that  salt  was  produced  in  Michigan,  in 
quantities,  at  but  a  single  interior  point,  Saginaw,  which  lies  in 
close  proximity  to  the  water. 

The  distance  from  Ludington  and  Manistee  to  Milwaukee  and 
Cliicago  is  from  100  to  150  miles.  It  appears  from  this  record 
that  salt  has  for  many  years  been  transported  from  these  points 
of  production  by  water  to  both  Milwaukee  and  Chicago.  Much 
of  this  transportation  is  in  boats  owned  by  the  producers  of  the 
salt ;  but  there  is  to-day,  and  for  some  time  has  been,  a  regular 
tariff  of  the  Pere  Marquette  steamers  naming  a  rate  of  21-  cents 
from  both  these  producing  pomts  to  Milwaukee  and  Chicago. 

While  it  does  not  appear  under  what  circumstances  salt  is 
carried  from  ports  upon  Lake  Huron  to  Chicago  and  Milwaukee 
nor  the  cost  of  the  transportation,  it  does  appear  that  the  salt 
produced  at  these  Lake  Huron  ports  moves  mainly  by  water. 
The  testimony  shows  that  80  per  cent  of  all  the  salt  manufac- 
tured in  Michigan  starts  upon  its  journey  by  water,  and  it  was 
said  that  90  per  cent  of  the  salt  going  into  this  contested  territory 
moved  by  lake  and  rail. 

It  can  not,  therefore,  be  doubted  and  must  be  assumed,  that 
this  Michigan  salt  can  be  laid  down  in  Chicago  or  Milwaukee 
for  21  cents  per  100  pounds.  The  cost  of  reaching  any  particu- 
lar point  of  consumption  can  not  exceed  the  rate  from  these  two 
railroad  centers  plus  21  cents  for  the  water  carriage. 

The  distance  from  Chicago  to  St.  Louis  by  the  short  line  is 
278  miles.  Several  different  lines  of  railway  connect  these 
great  commercial  centers,  and  competition  for  business  by  these 
different  routes  is,  and  always  has  been,  most  active.  It  ap- 
pears that  the  rate  on  salt  from  Chicago  to  East  St.  Louis 
was  for  a  long  time  6|  cents  per  100  pounds.  The  local  rate 
on  package  salt  is  now  9  cents  per  100  pounds,  the  rate  on 
bulk  salt  the  same. 


221  KAll.WAN     I'KOI'.LKMS 

Di'lroit  is  within  llic  .M icliin'aii  licM.  Tlic  ([uality  of  the  salt 
proiliU'i'tl  at  thai  |n>iiit  and  tiic  cosl  ol'  produclioii  arc  substan- 
tially till-  sanu"  as  at  oilier  points.  Tlu'  pric'c  at  which  that  salt 
is  sold  can  not  I'xcci'd  that  obtained  for  salt  pi'odnced  at  other 
Michii;"an  [)lants.  11'  Detroit  salt  is  to  lind  a  market  in  St.  Louis  or 
upon  the  Mississippi  river  it  nnist  move  there  at  no  higher  costof 
transportation  than  obtains  from  other  Michigan  producing  points. 

The  Wabash  Railroad  has  upon  its  rails  at  Detroit  extensive 
salt  works.  If  it  is  to  movc^  any  part  of  tlie  product  of  that 
factory  to  St.  Louis  or  other  Mississippi  ri\er  points  it  nuist 
make  a  rate  fairly  commensurate  with  that  from  the  plants  of  its 
competitors,  and  this  is  precisely  what  the  Wabash  Railroad  has 
attempted  to  do  hi  the  past  and  is  attempting  to  do  to-day. .  1 1 
insists  that  just  as  the  Kansas  field  is  treated  as  an  entirety  in 
the  naming  of  rates,  so  shall  the  Michigan  field  be  treated,  and 
that  Detroit  is  a  part  of  that  field. 

The  cost  of  transporthig  salt  from  Ludington  or  Manistee  to 
Chicago  is  2^  cents  per  100  pounds;  from  Chicago  to  St.  Louis, 
9  cents  per  100  pounds,  making  a  total  cost  of  111  cents.  The 
present  rate  from  Detroit  is  11  i^  cents.  It  is  difficult  to  see  how 
the  Wabash  road  can  maintain  a  higher  rate  from  Detroit  than 
it  now  does  in  view  of  the  competition  which  it  meets  from  the 
Michigan  field  by  other  lines  of  transportation.  Nor  can  it  be 
said  that  the  present  rate  from  Chicago  is  an  nnnatural  or  an 
abnormal  one.  That  rate,  considering  the  general  level  of  rates 
obtaining  in  the  respective  territories,  is  not  much  if  any  lower 
than  the  present  rates  from  the  Kansas  field  to  Kansas  City  — 
not  as  low  as  the  131^-cent  rate  from  that  field  to  St.  Louis. 

Should  the  Wabash  Railroad,  under  the  circumstances  of  this  case, 
be  required  to  insist  upon  the  maintenance  of  as  low  a  rate  from 
Hutchinson  to  St.  Louis  as  it  maintains  from  Detroit  to  St.  Louis? 

It  may  be  (questioned,  to  begin  with,  whether  there  is  to-day 
any  unreasonable  disparity  in  the  rates  on  package  salt,  which 
are  1 1 1-  cents  from  Detroit  as  agamst  13^  cents  from  Ilutchmson. 

While  the  rate  from  Detroit  is  less,  although  the  distance  is  the 
same,  it  must  be  remembered  that  the  general  level  of  rates  in  the 
tt-rritory  east  of  St.  Lduis  is  much  lower  than  that  in  territory  to 


COMMERCIAL  COMPETITION  225 

the  west.  Indeed,  this  difference  greatly  exceeds  the  difference 
between  these  rates.  For  example,  the  first-class  rate  from  Hutch- 
inson to  St.  Louis  is  i;1.19^,  while  that  from  Detroit  is  4G  cents. 
In  official  classification  salt  is  classified  as  sixth  class,  and  the  sixth- 
class  rate  from  Detroit  to  St.  Louis  is  14  cents.  That  commodity 
is  not  rated  in  the  western  classification,  but  the  lowest  rate  named 
from  Hutchinson  to  St.  Louis  upon  any  class  is  22  cents. 
1  It  has  been  recently  held  in  S^mfiower  Grlass  Co.  v.  A.,  T.  ^ 
S.  F.  By.  Co.,  22  I.  C.  C.  Rep.,  391,  that  this  difference  in  trans- 
portation conditions  may  justify  a  lower  commodity  rate,  mile 
for  mile,  east  than  west  of  the  Mississippi  river.  On  the  whole, 
we  are  inclined  to  the  opinion  that  the  difference  between  these 
rates  on  package  salt  from  the  east  and  from  the  west  is  no 
greater  than  it  ought  to  be  under  all  the  circumstances. 

The  proportional  rate  of  10  cents  applies  upon  traffic  destmed 
for  points  beyond  St.  Louis.  This  Commission  has  m  several 
instances  held  that  a  proportional  rate  applying  to  through  traffic 
might  well  be  lower  than  the  corresponding  local  rate,  and  we 
do  not  find  in  this  instance  any  undue  disparity. 

The  rate  of  9  cents  upon  bulk  salt  is  the  same  a.s  that  from 
Chicago  and  is  not  therefore  justified  by  competitive  conditions. 
This  rate  gives  to  Detroit  a  distinct  advantage  over  other  points  in 
the  jNIiehigan  field  and  over  the  Kansas  field,  to  which  it  is  not 
entitled.  In  our  opinion,  a  corresponding  rate  from  the  Kansas 
field  of  11  cents,  with  a  minimum  of  60,000  pounds,  would  be  rela- 
tively fair,  and  such  a  rate  would  afford  better  business  for  the 
carriers  than  the  present  package  rate,  minimum  37,500  pounds. 

Our  conclusion  is  that  in  tlie  main  rates  from  Detroit  to 
St.  Louis  do  not  unduly  discriminate  against  the  Kansas  pro- 
ducer, but  assuming  that  they  do,  can  the  Wabash  Ilailroad  be 
properly  required  to  correct  that  discrimination  ?  We  do  not 
think  that  it  should  be,  for  the  reason  that  this  carrier  does  not 
bear  such  a  relation  to  the  rates  from  Hutchinson  to  St.  Louis 
that  it  should  be;  [)roperly  held  respoiisil)le  for  whatever  disci'im- 
iiiation  may  exist  in  the  })resent  relation. 

'I'lie  Wabasli  takes  up  this  traffic  at  Kansas  City-  It  can  only 
engage  in  the  transportation  from  the  Kansas  field  in  connection 


■2-2{\  i;  \  w.w  A^•  ri;()r.i,KMS 

wiili  stunc  line  opciat iiii;  it>  Kaiisiis  Ciiy  I'loiu  the  west.  Were 
the  Wahiisli  tlisjiosetl  to  icthice  the  rate  Irom  the  Kansas  field  to 
St.  Louis  it  eonld  oulv  th>  so  hy  saciilieintjf  its  own  revenue  from 
Kansa.s  Citv  to  St.  Louis  to  a  sutliciciil  extent  to  bring  about  the 
th'sired  reailjustuteiit.  'IMie  pnsnit  rate  to  the  Missouri  river  from 
lh<'  Kansas  field  is  !<•  cents,  and  the  Wabash  must,  therefore,  if 
it  estahhslies  a  rate  of  11 .',  cents  to  St.  Louis,  aeeept  for  its  trans- 
portation service  Ironi  Ivansas  City  1^  cents  per  100  pounds. 

The  distance  I'roiu  Kansas  City  and  Chicago,  respectively,  to 
St.  Louis  is  ahnost  exactly  the  same.  The  cost  of  bringing  salt 
from  the  Kansas  litdd  to  Kansas  City  is  10  cents  per  100  pounds  ; 
the  cost  of  bringing  salt  from  the  Alichigan  field  to  Chicago  is 
'2\  cents  per  1<>()  pounds.  How,  in  this  posture,  can  the  Wabash 
Railroad,  extending  from  both  Chicago  and  Kansas  City  to 
St.  Loui.s,  be  retpiired  to  maintain  from  Chicago  and  Kansas 
City  such  rates  as  will  make  the  through  rate  from  the  point  of 
production  the  same  ?  To  do  this  that  carrier  must  name  a  rate 
from  Kansas  City  which  is  7|  cents  per  100  pounds  less  than 
from  Ciiieago,  although  upon  every^  consideration  the  Chicago 
rate  sliould  be  the  lower. 

There  is,  in  our  opinion,  undue  discrimination  upon  the  part  of 
the  Wabash  Jlailroad  in  maintaming  the  present  rate  of  9  cents 
upon  bulk  salt.  That  rate,  which  is  the  same  as  the  present  rate 
from  Chicago,  is  not  forced  by  legitimate  competition  upon  the 
carrier,  and  the  Wabash  Railroad  should  either  join  in  establish- 
ing a  corresponding  rate  from  the  Kansas  field  or  should  advance 
its  rate  from  Detroit. 

As  to  all  other  rates  there  is  no  undue  discrimination,  and  if 
there  were  the  Wabash  could  hardly  i)e  called  upon  to  remove 
the  same,  since,  except  as  to  this  bulk-salt  rate,  it  simply  accepts 
a  situation  which  it  can  not  control.  There  is  no  similarity 
between  this  case  and  that  presented  in  Railroad  Commksmi  of 
Tenn.  v.  A.  A.  IL  R.  Co.,  17  I.  C.  C.  Rep.,  418,  for  there  the  lines 
beyond  the  Ohio  river  absolutely  dominated  the  situation,  and  the 
di.scrimination  could  not  exist  except  by  their  voluntary  action. 

It  has  already  been  noted  that  the  average  distance  from  the 
Kansas  field  to  the  upper  Mississippi  river  crossings  is  greater 


I 


COMMERCIAL   COMPETITION  227 

than  to  St.  Louis.  Upon  the  other  hand,  the  distance  from  the 
Michigan  field  grows  less  as  we  proceed  north  from  St.  Louis. 
If  the  Kansas  field  is  not  entitled  to  meet  the  Michigan  field 
upon  an  equality  of  rate  at  St.  Louis,  it  is  still  less  entitled  to 
do  so  at  Mississippi  river  points  north  of  St.  Louis.  For  ex- 
ample, the  distance  from  Hutchinson  to  Dubuque,  the  most 
northerly  of  these  crossings  in  controversy,  is  610  miles,  while 
the  distance  from  Chicago  is  but  172  miles.  Rates  from  the 
Kansas  field  increase,  as  has  been  .already  noted,  from  13|^  cents 
at  St.  Louis  to  18  cents  at  Dubuque.  Rates  from  the  Michigan 
field  are  13|  cents  to  all  Mississippi  river  crossmgs  north  of 
St.  Louis.  Manifestly,  if  there  is  no  undue  discrimination  at 
St.  Louis  none  exists  at  the  more  northerly  crossings. 

This  complaint  also  puts  in  issue  the  justice  of  the  present 
adjustment  with  respect  to  a  great  number  of  points  west  of  the 
Mississippi  river,  mostly  in  the  states  of  Iowa  and  Missouri. 

The  competitive  situation  embraced  in  the  present  proceeding 
was  presented  to  the  Commission  in  Anthony  Salt  Co.  v.  M.  P. 
Ry.  Co.,  5  I.  C.  C.  Rep.,  299,  the  Kansas  shippers  being  in  that 
case,  as  at  the  present  time,  the  complainants.  It  is  impossible  to 
tell  from  the  report  of  that  case  exactly  what  the  relation  of  rates 
complained  of  then  was,  but,  clearly,  it  was  much  more  favor- 
able to  Michigan  than  the  present  adjustment.  The  case  shows, 
for  example,  that  the  rate  from  the  Kansas  field  to  St.  Louis  was 
24A-  cents,  while  the  rate  from  tlie  Michigan  field  at  that  time 
was  10^  cents.  It  seems  fairly  inferable  from  the  statement  of 
facts  that  under  the  then  existing  rates  the  IVIichigan  producer 
met  the  Kansas  producer  upon  a  substantial  equality  at  tlie  Mis- 
souri river  and  had  an  advantage  in  the  rate  with  respect  to  most 
territory  east  of  that  river. 

While  that  complamt  was  dismissed,  the  controversy  continued. 
Carriers  serving  the  Kansas  field  were  defendants  to  that  pro- 
ceeding and  resisted  the  application  of  the  complainants,  but  none 
the  less  it  was  and  is  manifestly  in  their  interest  to  supply  this  ter- 
ritory between  the  Mississippi  and  Missouri  rivers  from  Kansas. 
Kansas  producers  continued  to  insist  upon  a  better  rate,  and  rates 
were  gradually  reduced  at  all  points.    At  St.  Louis  the  cut  was 


•j-_»s  i;  \ii.\N  ^^    I'Kor.i.i'.Ms 

fi-Diu  '2\\  o'lits  to  l;'>.l  criits.  111  Foil.  Madison  from  24^  cents  to 
I")  cents"  'I'lu-n-  were  also  advances  Ironi  Michigan.  The  whole 
siiuati»»n  wius  a  most  ironhU'sonu-  one,  leading  to  many  disputes 
anil  to  many  nnlortnnatt'  rate  sitnations  from  the  standpoint  of 
tlie  carriers.  Fre(|iu'nt  coid'erences  were  held,  until  finally  the 
matter  was  laid  at  rest  1»\    tlie  present  adjustment. 

'I'his  ca.se  doi's  not  clearly  show  the  exact  theory  upon  which 
that  ad)nstnient  has  heen  worked  out,  nor  does  there  seem  to 
have  heen  any  t'xact  theory.  Prohably,  in  view  of  the  conflicting 
interests  and  the  great  nnmher  of  carriers  involved,  it  would  be 
impossible  to  apply  any  uniform  rule.  Generally  stated,  rates 
from  Michigan  in  all  cases  are  less  to  the  Mississippi  river,  as, 
in  onr  opinion,  they  properly  should  be.  Soon  after  crossing  that 
river  a  point  is  reached  where  the  rate  from  Michigan  and  from 
Kansas  becomes  the  same,  and  this  relation  is  continued  west, 
producing  a  blanket  of  considerable  extent,  beyond  which  the 
rate  is  in  favor  of  Kansas. 

W'v  have  examined  a  great  number  of  these  intermediate 
points.  As  must  be  the  case  with  every  blanket,  instances  are 
fouiul  U[)on  the  edges  where  the  present  adjustment  is  not  alto- 
gether in  accordance  with  the  relative  distances  and  is  not  prob- 
ably the  adjustment  whicli  would  he  established  if  that  point 
alone  were  under  consideration.  In  the  very  nature  of  things  it 
would  l>c  almost  impossible  for  us  to  look  into  each  instance,  nor 
have  we  attempted  to  do  so.  The  matter  has  been  long  the  sub- 
ject of  controversy ;  the  settlement  seems  to  have  been  honestly 
made,  and  without  undertaking  to  approve  the  adjustment  in 
detail  and  without  expressing  an  opinion  which  would  prevent  a 
further  examination  of  particular  instances  which  may  be  called 
to  our  attentirMi,  we  fail  to  find,  on  the  whole,  tliat  this  adjust- 
ment unduly  discriminates  against  the  interests  of  Kansas,  which 
are  represented  by  the  complainants. 

On  the  whole,  we  are  satisfied  that  the  present  rates  of  freight 
are  as  favorable  to  the  Kansas  field  as,  all  things  considered,  they 
should  be,  except  that  a  rate  applicable  to  the  transportation  of 
bulk  salt  from  the  Kansas  field  to  St.  Louis  should  be  named  to 
correspond  witli  that  established  from  Detroit. 


COMMERCIAL   COMPETITION  229 

The  Wal)asli  Railroad  Company  will  be  required  to  cease  and 
desist  from  the  discrimination  now  arising  out  of  the  main- 
tenance from  Detroit  to  St.  Louis  of  the  9-cent  rate  upon  bulk 
salt.    Otherwise  the  complaint  will  be  dismissed. 

Fourth  Section   Applications 

It  has  been  already  noted  that  rates  from  the  Kansas  field  to 
some  points  west  of  the  Mississippi  river  are  slightly  higher 
than  those  at  the  river  crossings,  and  it  therefore  results  that  in 
some  instances  there  is  a  violation  of  the  fourth  section.  This  is 
referred  to  in  the  complaint  and  the  intervening  petitions. 

The  case  was  orighially  heard  in  the  fall  of  1910,  but  was  not 
argued  or  disposed  of  at  that  tune  for  the  reason  that  the  parties 
indicated  a  desire  to  make  certain  rate  changes  which  it  was 
thought  might  remove  the  cause  of  complaint.  In  fact,  the  rates 
from  Detroit  to  St.  Louis  were  advanced,  as  already  indicated,  but 
this  was  not  sufficient  to  satisfy  the  complainants,  and  the  case 
was  accordmgly  set  down  for  further  hearing  m  November,  1911. 

No  reference  was  made  upon  the  first  hearing  to  the  violations 
of  the  fourth  section.  It  was  the  purpose  of  the  Commission  to  set 
down  for  investigation  upon  the  same  date  with  the  last  hearing 
the  applications  which  had  been  filed  by  the  defendants  to  this  pro- 
ceeding for  leave  to  mamtain  the  higher  intermediate  charge,  but 
through  error,  only  the  Wabash  Railroad  Company  was  notified. 

Upon  the  hearing  the  examiner  called  attention  to  the  fact 
that  the  fourth-section  applications  of  the  defendants  should  have 
been  assigned  and  the  defendants  were  given  an  opportunity  to 
introduce  any  testimony  upon  that  point  which  they  desired. 
Some  of  them  availed  themselves  of  tliis  opportunity,  and  the  sub- 
ject is  referred  to  in  more  or  less  detail  m  all  the  briefs  which  have 
been  filed  and  was  to  some  extent  discussed  upon  the  argument. 
It  was,  however,  said  by  counsel  for  one  or  more  of  the  defend- 
ants upon  the  argument  that  this  matter  ought  not  to  be  disposed 
of  upon  the  present  record,  for  the  reason  that  other  carriers  not 
defendants  to  this  proceeding  were  interested  in  these  rates. 

So  far  as  appears  the  question  presented  under  these  fourth- 
section  applications  is  an  extremely  simple  one.    Lines  leading 


•j;;n  KAII.WAN     1M:()1'.IJ':MS 


from  Kansas  in  nicclinu-  ((.nipi'lition  upon  the  Mississippi  river 
have  MuuK'  rairs  wliiih  llu-y  allege  to  be  abnorinally  low,  and 
for  this  reason  tliev  ask  to  maintain  at  intermediate  points  higher 
rates,  whith,  thcv  sav,  are  reasonable.  We  have  fonnd  that  there 
is  aetive  competition  npon  the  Mississippi  river  between  these 
two  salt  lields  and  that  the  rates  from  both  directions,  especially 
from  till-  Kansjus  field  to  these  various  Mississippi  river  crosshigs, 
are  low,  bnt  we  have  not  found,  nor  do  we  find,  that  they  are 
so  unreasonably  low  as  to  justify  the  charging  of  a  higher  rate  at 
intermediate  points. 

Neither  do  we  find  that  the  competitive  conditions  which  are 
alleged  to  justify  the  higher  intermediate  rates  do,  under  all  the 
eireumstances  of  this  case,  afford  such  valid  justification.  Nor 
yet^  while  declining  to  condemn  as  unreasonable  the  intermediate 
rates,  have  we  given  to  those  rates  such  examination  that  we  can 
pronounce  them  reasonable  at  this  time. 

Before  we  allow  these  defendants  to  depart  from  the  mandate 
of  the  statute  as  expressed  hi  the  present  fourth  section  we  must 
be  satisfied  that  the  more  distant  rates  are  unduly  low  and  that 
the  departure  from  the  fourth  section  is  warranted  by  competi- 
tive conditions  at  the  more  distant  pouit  which  do  not  exist  at  the 
intermediate  point.  In  this  case  we  fail  to  find  that  the  long- 
distance rates  are  unreasonably  low,  and  apparently  the  compe- 
tition at  the  more  distant  point  is  of  exactly  the  same  sort  as  at 
the  intermediate  point. 

If,  therefore,  these  applications  stood  for  disposition,  we  should 
deny  the  right  to  maintain  the  higher  intermediate  rates.  So  far 
as  we  can  see,  the  facts  are  fully  before  the  Commission,  and 
nothing  would  be  gained  by  another  hearing  ;  but  if  these  defend- 
ants, or  any  of  them,  cf)nceive  that  a  further  investigation  should 
be  held  they  may  file  with  this  Commission,  on  or  before  the 
l.')th  day  of  March,  a  statement  asking  for  such  further  investi- 
gation and  giving,  briefly,  the  reasons  why  the  present  investiga- 
tion ha.s  not  been  sufficient.  If  upon  considering  these  statements 
ground  for  further  investigation  appears,  the  applications  will  be 
set  down  for  hearing.  Otherwise  orders  will  be  entered  denying 
the  applications  as  to  these  rates  on  salt,  effective  as  of  May  1, 1912. 


VIII 

RELATIVE  RATES 

The  Eau  Claire  Lumber  Case^ 
Knapp,  Commissioner : 

1.  The  complainant,  the  Eau  Claire  Board  of  Trade,  is  an 
association  of  citizens  and  residents  of  the  city  of  Eau  Claire, 
Wisconsin,  organized  to  promote  the  business  interests  of  that 
city.  The  defendant  railroad  companies  are  severally  common 
carriers  engaged  in  the  interstate  transportation  of  lumber  and 
other  freight.  The  sources  of  supply  of  the  west-bound  lumber 
shipped  over  these  roads  are  the  forests  of  northern  Michigan, 
Wisconsin  and  Minnesota;  and  the  main  points  from  which 
such  shipments  are  made  are  Minneapolis,  Eau  Claire,  Winona, 
La  Crosse,  Oshkosh,  Milwaukee  and  Chicago,  and  the  following 
towns  on  the  ^lississippi  river,  south  of  La  Crosse,  to  wit: 
Dubuque,  Clinton,  Lyons,  Fulton,  Moline,  Rock  Island,  Daven- 
port, Muscatine,  Burlington,  Keokuk,  Hannibal  and  Louisiana. 
The  market  or  distributing  towns  to  which  these  shipments  are 
made  are  for  the  most  part  the  "  Missouri  river  points,"  Sioux 
City,  Omaha,  Council  Bluffs,  St.  Joseph  and  Kansas  City. 

2.  No  one  of  the  defendant  roads  reaches  all  these  points  of 
production.  From  Eau  Claire  shipments  of  lumber  are  made  to 
the  Missouri  river  over  the  Chicago,  iNIilwaukee  &  St.  Paul,  the 
Chicago,  St.  Paul,  Minneapolis  &  Omaha,  and  the  Wisconsin 
Central.  The  Chicago,  Milwaukee  &  St.  Paul  road,  (hereinafter 
designated  the  "  Milwaukee,")  has  main  lines  as  follows :  from 
Chicago  to  Council  Bluffs  ;  from  Marion,  Iowa,  on  said  former 

1  Decided  June  17,  1892.  Interstate  Commerce  Commission  Reports,  Vol.  V, 
pp.  204-298.  For  significant  features  of  tiiis  case,  consult  Ripley's  Railroads : 
Rates  and  Regulation.    (Index.) 

231 


i;.\ii.\\.\\    I'Uor.LKMS 


line,  to  Kansas  City;  fioiii  Oslikosh  to  Milwaukee;  from  Mil- 
waiikt'o  to  Sal)iila  .1  unction  ;  from  Minneapolis  via  Wabasha 
ti>  Sal>ula  .lunetion,  ealled  tiie  *"  river  line;"  from  JNIinneapolis 
to  Mastin  City,  called  llie  "  Iowa  &  Minnesota  line."  Minneapolis, 
Winona  and  La  Crosse  are  on  the  "river  line,"  but  Eau  Claire 
is  on  a  liraiich  forty-eight  miles  in  length  connecting  with  tiiat 


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line  at  Wabasha.  The  Milwaukee  road  has  an  arrangement  with 
the  Iowa  Central  by  which,  in  hauling  from  Eau  Claire  and 
Winona  to  Council  Blufit's,  it  uses  the  latter  road  from  Mason 
City  to  Pickering,  a  distance  of  97  miles,  and,  in  hauling  to 
Kansas  City,  it  uses  the  same  road  from  IVIason  City  to  Hedrick, 
a  distance  of  167  miles.  The  distances  via  the  Iowa  Central  are 
considerably  less  than  those  over  the  Milwaukee  line  proper. 


EAU  CLAIRE  LUMBEE   CASE  233 

The  Chicago,  St.  Paul,  Minneapolis  &  Omaha  road  (hereinafter 
styled  the  "  Omaha ")  has  a  line  extending  from  Eau  Claire 
through  St.  Paul  and  Minneapolis  to  Sioux  City,  Omaha,  and 
Council  Bluffs.  *  *  *  *  '^  * 

3.  As  above  stated,  the  sources  of  supply  of  the  lumber  carried 
by  these  roads  are  the  forests  of  Northern  Minnesota,  Wisconsin 
and  Michigan.  The  Minnesota  timber  is  manufactured  into  lum- 
ber largely  at  Minneapolis,  and  thence  transported  to  market; 
the  Michigan  timber  is  manufactured  into  lumber  in  that  state 
and  carried  by  water  to  Milwaukee,  Chicago  and  other  lake 
ports ;  the  Wisconsin  timber  is  manufactured  extensively  at 
Eau  Claire,  Winona,  La  Crosse  and  Oshkosh.  Eau  Claire  and 
La  Crosse  are  in  western  Wisconsin,  the  former  about  75  miles 
by  water  from  the  Mississippi  river,  and  the  latter  on  its  eastern 
bank  ;  Winona  is  in  Minnesota,  on  the  western  bank  of  the 
Mississippi,  and  Oshkosh  is  on  Lake  Winnebago  in  eastern 
Wisconsin.  Minneapolis  is  about  100  miles  from  Eau  Claire ; 
Winona  about  80  miles,  and  La  Crosse  about  108  miles.  Eau 
Claire  is  situated  at  the  junction  of  the  Eau  Claire  and  Chippewa 
rivers  ;  the  Eau  Claire  is  a  branch  of  the  Chippewa,  and  the 
latter  empties  into  the  Mississippi.  Logs  are  floated  down  the 
Eau  Claire  and  Chippewa  rivers  to  Eau  Claire,  and  thence  on 
the  Chippewa  and  JNIississippi  rivers  to  Winona  and  La  Crosse, 
and  also  to  Mississippi  river  points  below.  Logs  are  also  floated 
down  the  Black  river  to  La  Crosse  and  other  Mississippi  river 
towns.  A  large  part  of  the  timber  on  the  Eau  Claire  and  Black 
rivers  can  be  floated  with  about  equal  facility  down  either  stream 
and  taken  to  Winona  and  La  Crosse  on  the  one  hand  or  Eau 
Claire  on  the  other.  Eau  Claire,  Winona,  La  Crosse  and  Osh- 
kosh are  small  cities,  each  having  from  18,000  to  20,000  in- 
habitants, while  Minneapolis  has  about  150,000.  These  cities 
are  all  natural  lumber  markets  ;  they  have  large  sawmills,  and 
the  manufacture,  sale  and  shipment  of  lumber  are  conducted  on 
a  large  scale  at  Minneapolis,  and  constitute  the  principal  busi- 
ness of  the  other  places.  Eau  Claire  and  all  the  cities  of  Wis- 
consin, Minnesota  and  the  northern  peninsula  of  Michigan,  and 
also  Mississippi  river  points  engaged  in  the  manufacture  and 


234  i;.\ii.\\.\\    I'i;oi;li:ms 

shipnionl  o{  lumluT  to  tin*  Missouri  liviT,  may  be  said  to  be  in 
roiupt'tition  in  this  business,  but  tlie  most  active  competitors  of 
Kuu  C'hiiro  are  Winona  and  La  C'rosse.  The  principal  distrib- 
ulini;  pt)ints  for  Kau  Chiire  lumber  are,  and  for  20  or  25  years 
have  U'cn,  the  Missouri  river  towns,  which  are  also  the  prin- 
cipal markets  for  other  shipping  points  both  on  the  Mississippi 
river  and  in  the  interior.  Eau  Claire  seems  to  be  more  rigidly 
eontineil  tlian  its  competitors  to  the  Missouri  river  market. 
Since  1884  when  the  Bogue  award  was  made,  southern  yellow 
pine  from  the  states  of  Georgia,  the  Carolinas,  Southern  Mis- 
souri, Arkansas  and  Texas,  has  come  into  competition  with  the 
white  pine  from  Minnesota,  Wisconsin  and  Michigan.  This 
competition  extends  north  to  the  southern  line  of  Minnesota, 
and  is  strong  in  Missouri,  Kansas,  Nebraska  and  Iowa.  The 
natural  tendency  of  this  competition  is  to  reduce  the  price  of 
the  northern  pine,  and  in  that  way  affect  transportation  rates 
on  the  latter,  but  it  does  not  appear  to  have  an  appreciable 
effect  on  the  relation  of  rates  on  lumber  between  Eau  Claire 
and  its  immediate  competitors.  *  *  * 

5.  The  Omaha  road  was  built  to  Eau  Claire  in  1878  or  1879, 
and  the  Milwaukee  road  about  1882.  Prior  to  the  building  of 
these  roads,  lumber  produced  at  that  place  was  rafted  and  then 
floated  down  the  Chippewa  and  Mississippi  to  various  towns  on 
the  latter  river,  from  which  it  was  distributed  by  rail  to  market 
destinations  mainly  in  the  west.  These  towns  on  the  Mississippi 
have  been  engaged  in  this  business  since  1850  or  1852.  After 
these  roads  were  constructed,  Eau  Claire  entered  largely  into 
the  business  of  "  piling,  drying  and  manufacturing  lumber  "  and 
shipping  the  same  to  market  by  rail.  About  half  the  cut  at  Eau 
Claire  in  1890  was  shipped  in  this  way,  and  the  other  half  was 
rafted  to  Mississippi  river  towns;  and  it  is  estimated  that  eighty 
per  cent  of  the  lumber  rafted  to  points  below  Winona  comes 
from  the  Chippewa  river.  Eau  Claire  appears  to  be  adapted  by 
location  and  in  other  respects  for  the  manufacture  and  sale  of 
lumber  ;  it  has  a  natural  booming  ground  or  place  for  the  safe 
storage  of  logs,  cheap  transportation  from  the  stump  to  the  mills, 
proximity  to  the  timber  and  locations  suitable  for  mills  and  yards. 


EAU  CLAIRE  LUMBER  CASE  235 

Being  situated  nearer  the  pine  forests,  the  sources  of  timber 
supply,  and  at  the  confluence  of  two  rivers  which  penetrate 
those  forests,  the  Eau  Claire  and  Chippewa,  it  appears  to  have 
natural  advantages  over  its  neighboring  competitors.  .  .  .  After 
lumber  is  in  the  raft,  the  cost  of  its  transportation  by  water 
down  the  Mississippi  is  less  than  for  the  same  distance  by  rail ; 
but,  including  the  rafting  and  preceding  expenses,  the  testimony 
is  to  the  eifect  that  lumber  can  be  shipped  from  Eau  Claire  by 
rail  direct  to  Missouri  river  markets  at  as  little  if  not  less,  cost 
than  it  can  be  floated  to  Mississippi  river  points  and  thence 
transported  by  rail  to  those  markets.  The  railway  companies 
whose  lines  run  from  Chicago  across  the  Mississippi  to  the  Mis- 
souri river  territory  naturally  desire  that  lumber  be  carried  by 
water  down  the  Mississippi  to  shipping  points  on  that  river, 
and  be  thence  shipped  over  their  roads  to  the  Missouri  river 
markets.  The  Omaha  road  is  also  interested  in  maintaining  high 
lumber  rates  at  Eau  Claire,  because  of  an  agreement  between 
that  road  and  the  purchasers  of  its  timber  lands  in  northwestern 
Wisconsin,  by  which  those  purchasers  bound  themselves  to  ship 
over  its  line  the  timber  from  such  lands,  (which  is  further  from 
the  Missouri  river  markets  than  Eau  Claire  timber),  on  condition 
of  receiving  the  same  rates  as  might  be  charged  by  that  road 
on  such  shipments  from  Eau  Claire. 

6.  The  rates  from  Eau  Claire  and  the  other  shipping  points  to 
the  Missouri  river  markets  are  based  on  the  rate  from  Chicago, 
being  certain  differentials  over  or  under  that  rate,  and  the  same 
rate  is  made  from  any  one  of  the  shipping  points  to  all  the 
Missouri  river  markets,  although  the  distances  to  the  latter  vary 
materially.  ****** 

In  the  early  history  of  the  lumber  industry  in  this  territory 
the  principal  points  of  competition  were  Chicago  on  the  one 
hand,  and  St.  Louis,  Hannibal  and  Louisiana  on  the  other. 
Chicago  received  its  lumber  from  Michigan  by  way  of  the  lake, 
and  the  other  towns  received  theirs  by  way  of  the  Mississippi. 
As  railroads  were  built  from  time  to  time  into  the  northern 
pineries,  and  numerous  towns  engaged  in  the  manufacture  of 
lumber,  the  conflict  of  rates  increased  and  nmch  uncertainty  and 


2;}(i  1;AII.\\.\\     I'KOI'.LKMS 

donu)rali/.;\tion  ivsullod.  Alter  several  unsuccessful  attempts 
to  iiiljust  these  dilVerenees,  the  railway  companies  finally  sub- 
mitted the  mailer  to  Mr.  (ieorge  iM.  Bogue,  under  an  agreement 
l)et\veen  them  to  abide  by  his  arbitration.  The  decision  rendered 
by  him,  known  as  the  "  Bogue  Award  "  was  made  May  26,  1884, 
and  is  as  follows: 

\\\   m;|>    ok    TIIK    AUIUTRATOR    AS    TO    THE    DIFFERENTIALS    WHICH 
-IIAI.!,    (JDVKRN    ON     Ll'MlSKR    TO    MISSOURI     RiVKR     PoiNTS 

.1.  W.  Mi.l-ley.  Es(i.,  Chicago,  ISIay  lU,  1884. 

(."Iiainiian,  etc.,  —  Chicago. 
Dear  Sir:  —  The  question  as  to  what  difference  shall  govern  in  rates 
from  the  several  shipping  points  on  or  east  of  the  Mississippi  river  on 
linnber  destined  to  Missouri  river  points,  referred  to  me  for  arbitration,  has 
iuid  my  careful  consideration.  ***** 

I  am  impressed  with  the  idea  that,  instead  of  this  question  being  settled 
on  the  basis  of  the  cost  of  lumber,  the  question  at  issue  is,  "  AVhat  rate  will 
enable  each  line  party  to  this  arbitration  to  place  its  fair  proportion  of 
lumber  in  the  territory  under  consideration?  for  it  is  fair  to  assume  that 
no  roail  will  see  its  principal  lumber  points  disnuintled  and  dried  up  till  all 
efforts  to  retain  their  prominence  have  been  exhausted ;  and,  meantime,  in 
the  effort  to  do  this,  a  great  deal  of  money  will  be  wasted.  It  is  no  doubt 
true  that  the  roads  reaching  Chicago  —  which  is  the  largest  primary  grain 
and  stock  receiving  point  in  the  world  —  can  in  their  return  make  rates  on 
lumber  without  loss,  which  would  net  a  loss  if  applied  to  the  roads  reaching 
the  pineries  direct;  and  it  is  doubtless  true,  also,  that  the  actual  cost  of  the 
haul  from  Chicago  does  not  greatly  exceed  the  shorter  haul  from  the  Mis- 
sis-sipjii  river ;  and  so  long  as  this  is  the  case,  it  is  natural  to  expect  that  the 
Chicago  roads  will  support  the  Chicago  market. 

This  theory  must  not,  however,  be  carried  to  the  extreme,  for  if  trans- 
portation costs  anything,  it  certainly  costs  something  for  the  haul  from 
Chicago  to  the  Mississippi  river  ;  and  it  is  neither  just  nor  politic  for  any 
road  to  claim  that  the  rate  from  the  Mississippi  river  should  be  as  much  or 
more  than  the  Chicago  rate,  whatever  may  be  the  cost  or  the  price  at  the 
two  markets. 

While,  therefore,  it  seems  easily  apparent  that  lumber  can  be  sold  at  the 
Mississipjti  river  at  as  low,  or  lower,  prices  than  at  Chicago,  it  cannot  be 
safely  argued  that  the  same  rate  should  be  made  for  so  much  greater 
•listance. 

Aft<T  a  most  careful  investigation  of  the  subject  in  all  its  bearings,  and 
with  a  keen  appreciation  of  the  delicate  and  difficult  duty  confided  to  me, 
I  shall  make  the  following  award  :      [Abridged.  —  Eu.] 


EAU   CLAIRE  LUMBER  CASE  237 

From  St.  Louis 0^  cents  per  cwt.  less  than  Chicago 

"     La  Crosse  and  Winona      .     .  1    cent        "         above  " 

"     Minneapolis  and  St.  Paul .     .  2    cents      "  "  " 

"     Menomonie  (Wis.),  Eau  Claire 

and  Chippewa  Falls  .     .     .  6i  cents      "  "  " 

All  of  which  is  respectfully  submitted. 

George  M.  Bogue,  Arbitrator. 

7.  To  show  the  construction  placed  upon  this  award  by  rail- 
road authorities  and  their  understanding  of  the  principle  upon 
which  it  was  based,  we  make  the  following  extracts  from  the 
testimony:  A.  C.  Bird,  Traffic  Manager  of  the  "Milwaukee" 
road,  stated  that  "  the  acknowledged  principle  of  the  award  was 
that  each  company  was  entitled  to  all  the  lumber  it  could  carry 
at  reasonable  rates  —  that  is,  rates  that  were  relatively  fair  as 
between  the  railroads,  and  to  put  all  the  manufacturers  on  any 
one  road  on  a  fair  equality  with  the  manufacturers  on  another 
road,  to  the  end  that  each  road  might  thereby  receive  the  bene- 
fit of  its  manufacturing  industries ; "  and,  again,  that  "  primarily 
the  object  of  the  Bogue  award  was  to  place  each  line  in  a  posi- 
tion to  carry  its  fair  share  of  the  Missouri  river  lumber,  and 
further  to  place  each  manufacturing  locality  upon  an  even  foot- 
ing with  its  competitors.  .  .  .  If  Eau  Claire  could  produce  lumber 
cheaper  than  Winona  or  La  Crosse,  then  the  latter  points  were  to 
have  a  loiver  rate  so  as  to  enable  them  to  competed 

This  award  appears  to  have  been  observed  by  the  defendant 
roads  since  its  date.  May  26,  1884,  except  that  from  February 
8,  to  June  20,  1888,  the  Milwaukee  road  had  a  four-cent  differ- 
ential in  force  on  shipments  from  Eau  Claire.  ...  It  is  plain  that 
if  the  rate  from  Eau  Clah-e  should  be  reduced,  a  corresponding 
reduction  could  be  made  by  the  roads  leading  from  other  lumber- 
producing  and  shipping  points  which  would  restore  the  present 
relation  of  rates  between  Eau  Claire  and  such  other  points. 

8.  At  the  time  the  complaint  was  filed,  July  7,  1890,  the 
Chicago  rate  to  Missouri  river  points  was  ten  cents  per  hundred 
pounds.    It  has  since  been  advanced  to  fifteen  cents. 

The  following  table  shows  the  rates  from  the  towns  named 
therein  to  Missouri  river  points,  with  the  '^  Bogue  differentials  " 


238 


l;.\ll.\\A^     I'Uol'-MOMS 


upplioii  to  tlu'  rates  from  ( 'liicago  of  ten  and  lifteen  cents,  respec- 
tivi'lv;  also  llie  present  rates  as  announced  by  the  tariffs  of  the 
Western  Krei«,dit  Association  :      [Abridged.  —  En.] 


PUKSENT  llATKS   AS 

UATKB  IINUKR  BOGITE 

PER  Tarikks  ok 

DiKFEUKNTIALS 

WESTEUN    FUKKillT 

Association 

Cents 

Cents 

Cents 

Chicago 

10 

15 

16 

Minneapolis 

12 

17 

17 

K;iu  Claire   . 

H>\ 

21. V 

2U 

Winona  .     . 

!        11 

10 

10 

La  (^rosse 

11 

16 

16 

Oshkosh  .     . 

15* 

20^ 

20^ 

Hoek  Island 

Gi 

m 

13 

lUirlinu'ton  . 

H 

10^ 

lU 

St.  Louis 

H 

Si 

Si 

While  the.se  rates  are  based  on  the  Chicago  rate,  it  appears 
that  the  buildino-  of  large  sawmills  at  other  points,  and  the 
extension  of  railways  into  the  timber  regions  of  the  northwest, 
have,  to  a  large  extent,  withdrawn  from  Chicago  the  business  of 
supplying  lumber  to  western  markets.  Chicago,  however,  does 
as  large  a  business  as  heretofore  in  supplying  its  local  demand 


Distances  by  Short  Lines 


To 

To 

To 

To 

Siou.x  City 

Council  Bluffs 

St.  Joseph 

Kansas  City 

Fhom 

Miles 

Miles 

Miles 

Miles 

Chicago    .     . 

517 

488 

479 

458 

Eau  Claire    . 

358 

457 

586 

605 

Winona    .     . 

328 

427 

556 

560 

La  Cro.s.se 

356 

443 

546 

540 

Minneapolis . 

263 

362 

491 

531 

Oshkosh  .     . 

580 

604 

655 

647 

Rock  Island . 

416 

317 

319 

337 

Biirlinpton    . 

355 

291 

273 

341 

St.  Louis  .     . 

611 

412 

307 

277 

EAU  CLAIKE  LUMBER  CASE  239 

and  ill  shipping  east.  Lumber  from  Oshkosh  is  also  shijiped 
extensively  through  Chicago  to  the  east ;  and  it  appears  that 
the  western  shipments  from  both  Chicago  and  Oshkosh  are 
mainly  the  surplus  remaining  after  eastern  markets  have  been 
supplied.         ****** 

10.  As  before  stated,  Minneapolis,  Winona  and  La  Crosse  are 
on  the  main  line  of  the  Milwaukee  road  from  Chicago  to  Min- 
neapolis, while  Eau  Claire  is  48  miles  distant  from  the  main 
line  on  a  branch  road  from  Wabasha.  On  an  average  there  is  a 
train  and  a  half  each  way  per  day  on  this  branch  road,  which  is 
about  one  tenth  of  the  business  of  the  main  line.  This  branch 
road  is  comparatively  level,  with  no  difficult  grades,  and  the 
cost  of  "physical  movement"  of  a  train  over  it  is  not  greater 
than  over  the  main  line.  It  appears,  however,  that  a  full  train 
cannot  always  be  made  up  on  this  branch  line,  and  hence  engines 
employed  there  cannot  always  be  utilized  to  their  full  capacity. 
As  a  general  rule  the  operating  expenses  per  ton  per  mile  are 
greater  on  branch  than  on  main  lines.  Eau  Claire  is,  however, 
on  the  main  line  of  the  Omaha  road,  and  is  reached  by  the  Wis- 
consin Central  and  other  roads  hereinbefore  named.  Oshkosh 
is  also  on  a  branch  of  the  Milwaukee  road  about  40  or  50  miles 
from  the  main  line.  It  may  be  stated  as  in  the  nature  of  an 
admission  that  Mr.  E.  P.  Ripley,  Third  Vice  President  of  the 
Milwaukee  road,  testified  that  he  knew  of  no  "  conditions  that 
should  make  the  rate  higher  from  Eau  Claire  than  from  Oshkosh 
except  that  Eau  Claire  is  nearer  the  lumber-producing  territory 
and  perhaps  may  be  said  to  be  able  to  pay  more,"  and  that  "there 
are  no  dissimilar  conditions  existing  at  Winona,  La  Crosse  and 
Minneapolis  as  compared  with  Eau  Claire  which  would  justify 
the  charge  of  a  higher  rate  per  car  per  mile  on  lumber  from  Eau 
Claire  to  the  Missouri  river  points  than  from  the  points  first 
named,  except  that  they  are  farther  from  the  supply  and  it  costs 
more  to  get  the  logs  there."     *  *  *  * 

11.  The  average  weight  of  a  car  load  of  lumber  being  about 
35,000  lbs.,  the  total  freight  per  car  load  to  Missouri  river  points, 
under  the  Bogue  differentials,  is  about  175.25  from  Eau  Claire  ; 
from  Winona  and  La  Crosse  about  -fSG.OO,  from  Minneapolis 


•jj()  i; Aii.w  A^    nioi'.LKMS 

;iIh»uI  >*.')0.')().  finin  ("liiiMi,^)  ;ilH)nt  ><.')'1..')0  and  from  Oshkosh 
nlH)Ut  !?7I.T'),  makiiiu'  llic  tlilTcn'in'cs  pen- i-ar  load  ag'aiiist  Eau 
(Maiiv  in  favor  of  Winona  and  I.a  ("rossc  about  •ii'll>.2o,  in  favor 
of  Cliirat^o  al)«)Ut  ><-~.'i>'i,  in  favor  of  Minneapolis  about  'i}!l5.75 
and  in  favor  of  Oshkosh  about  >i:5.r)0.  As  is  shown  by  the  table 
of  distances  above  ij^ivi-n,  the  niileaL^e  from  Eau  Claire  is  some- 
what i:;reator  than  from  Winona  and  La  (^rossc. 

Eau  Claire,  Winona  and  I. a  Crosse  {jroeure  their  hnuber  from 
praetieallv  the  same  rei,non  of  country,  but,  as  before  stated, 
Eau  Claire  has  natural  advantages  of  location  over  the  latter 
towns  in  l)eini;  nearer  the  sources  of  sup])ly.  Under  the  system 
of  differentials  in  force,  timber  can  be  and  is  hauled  fi'om  points 
three  or  four  miles  west  of  Eau  Claire  across  the  Eau  Claire 
river  to  lUark  rivei',  a  distance  of  seven  miles,  and  carried  by 
the  latter  to  l>a  Crosse.  The  differentials  are  important  factors 
in  making  up  the  price  lists  on  lumber  from  the  several  ship- 
ping points,  and  it  is  estimated  that  the  difference  in  rates  pre- 
vailing at  Eau  Claire,  Winona  and  La  Crosse  has  practically 
depreciated  Eau  Claire  lumber,  as  compared  with  Winona  and 
La  Crosse  lumber,  about '^300,000.00  each  year  since  the  Bogue 
award  went  into  effect.  It  further  appears  that  since  the  system 
of  rates  established  by  that  award  has  been  in  force  many  mills 
in  and  al)out  Eau  Claire  have  gone  out  of  business  or  been 
moved  to  other  points,  its  population  has  decreased  from  about 
22,000  to  18,000,  and,  as  shown  by  the  table  heretofore  given, 
the  cut  of  lumber  in  the  district  including  Eau  Claire  has  fallen 
off  from  454,544,72.3  feet  in  1884  to  394,022,292  feet  in  1890. 
From  1878,  about  the  time  the  first  railroad  (the  Omaha)  was 
built  to  Eau  Claire,  the  cut  of  lumber  in  the  Eau  Claire  district 
had  aimually  increased  up  to  and  including  1884.  On  the  other 
hand,  the  cut  of  lumber  at  Winona  increased  from  90,630,550  feet 
in  1884  to  145,000,000  feet  in  1890,  and  in  the  district  includ- 
ing La  Crosse  it  increased  from  187,700,000  feet  in  1884  to 
243,195,583  feet  in  1890.  .  .  .  After  the  Bogue  award  was 
put  in  effect,  the  shipment  of  lumber  from  Eau  Claire  over  the 
Omaha  road  was  substantially  al)andoned.  The  evidence  is  to 
the  effect  that,  under  the  existing  differential,  Eau  Claire  cannot 


EAU  CLAIRE  LUMBER  CASE  241 

successfully  compete  with  Winona  and  La  Crosse  in  piling  lum- 
ber and  shipping  it  by  rail  to  ^lissouri  river  markets. 

12.  About  a  year  previous  to  the  commencement  of  the  present 
proceeding,  a  similar  proceeding  was  begun  in  behalf  of  Eau 
Claire,  but  was  subsequently  discontinued  at  the  request  of  the 
traffic  manager  of  the  Milwaukee  road  and  the  general  freight 
agents  of  the  Omaha  and  the  Wisconsin  Central.  These  railway 
officers  substantially  admitted  that  the  61  cent  differential  was 
too  high,  and  promised  on  the  withdrawal  of  that  proceeding  to 
have  the  Eau  Claire  differential  lowered  if  they  could  induce 
the  other  lumber  roads  to  agree  to  it.  At  a  meeting  of  railroad 
officials  held  for  the  consideration  of  this  matter,  the  representa- 
tives of  these  roads  voted  for  a  reduction  of  the  Eau  Claire  rate, 
but  the  proposition  did  not  receive  the  support  of  the  other 
roads,  and  was  defeated.  *  *  *  *  * 

Conclusions 

The  case  presented  by  the  complainant  rests  upon  the  general 
averment  that  rates  on  lumber  from  the  city  of  Eau  Claire  to 
certain  specified  points  on  the  Missouri  river  are  unreasonable 
and  oppressive  in  comparison  with  rates  on  the  same  article  from 
Minneapolis,  Oshkosh,  La  Crosse  and  Winona.  The  lower  rates 
from  Minneapolis  and  Oshkosh  are  not  made  the  leading  feature 
of  this  contention,  the  more  distinct  and  special  ground  of  com- 
plaint being  the  alleged  disparity  between  Eau  Claire  and  its 
immediate  rivals,  La  Crosse  and  Winona.  These  three  towns 
have  considerable  similarity  in  location,  industries,  population 
and  distance  from  western  centers  of  distribution,  and  they  are 
active  competitors  with  each  other  in  the  various  lumber  markets 
which  they  seek  to  supply.  So  far  as  has  been  made  to  appear, 
the  west-bound  rates  on  this  commodity  from  La  Crosse  and 
Winona  have  at  all  times  been  the  same;  but  since  May,  1884, 
when  the  so-called  "  Bogue  award  "  went  into  effect,  the  rate 
from  Eau  Claire  has  always  been  greater  by  five  and  one-half 
cents  per  hundred  pounds,  except  for  a  period  of  about  four 
months  in  the  spring  of  1888  when  this  excess  was  only  three 
cents  a  hundred. 


242  i; A  11, WAV    TKOULKiMS 

The  first  circmnslanco  to  iirrest  attention  is  the  attitude  of 
the  Chii-aiji),  Milwaukee  »\:.  St.  Paul  road.  This  carrier  is  the 
only  defondani  named  in  the  original  complaint,  and  the  only 
one  against  which  relief  is  now  distinctly  dcniandcd.  The  great 
system  of  lailways  operated  by  this  company  embraces  in  its 
mileage  lines  whicli  connect  each  of  these  three  towns  with  the 
principal  lumber  markets  on  the  Missouri  river,  and  its  alleged 
discrimination  against  Eau  Claire  is  the  essential  grievance 
S()ught  to  be  redressed  in  this  proceeding.  In  the  answers  filed 
by  this  defendant  there  is  no  denial  that  the  lumber  rate  from 
Eau  Claire  is  out  of  proportion  to  the  rate  from  La  Crosse  to 
Winona,  nor  is  there  any  disclosure  of  facts  concerning  the  loca- 
tion and  business  of  these  rival  places,  and  its  own  relation  to 
them  as  a  common  carrier,  which  are  claimed  to  justify  thi-s  dis- 
parity. No  witness  was  produced  upon  the  trial  at  the  direct 
instance  of  this  company,  and  the  argument  of  its  counsel  at  the 
final  hearing  was  mainly  confined  to  a  statement  of  its  position. 
If  this  position  is  correctly  apprehended  by  us,  the  Milwaukee 
road  virtually  concedes  that  the  existing  rates  on  west-bound 
lumber  discriminate  against  Eau  Claire,  and  that  it  is  entitled 
to  lower  charges  on  this  article  as  compared  with  the  competing 
towns  of  La  Crosse  and  Winona.  This  admission  is  coupled  with 
a  professed  willingness  to  make  a  substantial  reduction  in  the 
Eau  Claire  rate,  provided  other  defendant  carriers  engaged  in 
transportation  of  lumber  to  ^lissouri  river  markets,  from  various 
producing  points  on  their  lines,  will  not  make  a  corresponding 
reduction  at  those  places  to  neutralize  the  effect  of  lower  charges 
at  Eau  Claire.  As  evidence  of  its  good  faith  in  taking  this  posi- 
tion, the  Milwaukee  company  shows  that  the  reduced  rate  which 
it  conceded  to  Eau  Claire  in  1888  was  followed  by  equivalent 
reductions  granted  at  once  to  those  other  towns  by  rival  car- 
riers, which  rendered  its  own  action  in  aid  of  Eau  Claire  wholly 
ineffectual,  and  claims  that  it  was  compelled  to  restore  the  pres- 
ent differejitial  rather  than  continue  a  contest  injurious  to  itself 
and  of  no  benefit  to  that  community.  In  effect,  therefore,  this 
defendant  acknowledges  that  Eau  Claire  is  unjustly  treated,  but 
alleges  in  extenuation  that  it  is  powerless  to  afford  relief. 


EAU  CLAIRE  LUMBER  CASE  243 

A  brief  examination  of  the  findings  discloses  the  reasons  for  this 
anomalous  situation.  At  a  number  of  places  on  the  Mississippi 
south  of  La  Crosse,  the  manufacture  of  lumber  is  extensively 
carried  on,  the  timber  from  which  it  is  produced  being  mainly 
obtained  along  the  tributary  streams  north  of  that  point.  Each 
of  these  towns  is  connected  with  the  Missouri  river  by  one  or 
more  of  the  defendant  railroads  other  than  the  Milwaukee. 
These  towns  compete  in  the  same  markets  with  the  lumber- 
manufacturing  districts  nearer  the  timber  supply,  and  they  nat- 
urally desire  to  retain  and  develop  an  industry  in  which  they 
are  so  largely  interested.  The  railroads  extending  westerly  from 
those  places  are  equally  anxious  for  the  traffic  which  this  indus- 
try supplies,  and  they  appear  to  have  some  advantage  over  their 
northern  competitors  in  shorter  distances  and  greater  aggregate 
tonnage.  Any  reduction,  therefore,  in  the  rate  established  at 
Eau  Claire,  which  would  tend  to  increase  the  output  of  lumber 
in  that  locality  at  the  expense  of  lumber  towns  more  remote 
from  the  forest  sources,  is  deemed  by  those  towns  and  the  car- 
riers identified  with  them  inimical  to  their  common  interests, 
and  meets,  almost  as  a  matter  of  course,  their  combined  opposi- 
tion. Under  these  circumstances  it  is  obvious  that  the  lumber- 
carrying  roads  which  do  not  reach  Eau  Claire,  and  which  are 
quite  independent  of  the  Milwaukee  system,  have  it  hi  their 
power  to  perpetuate  the  inequality  of  which  that  town  complains 
by  making  a  reduction  in  rates  from  other  points  equal  to  any 
reduction  which  the  Milwaukee  company  may  make  at  Eau 
Claire.  This  in  substance  is  the  excuse  offered  by  the  original 
defendant  for  maintaining  rates  on  lumber  shipments  from  Eau 
Claire  which  it  admits  to  be  relatively  unjust,  and  its  request 
that  other  carriers  acting  under  the  Bogue  award  be  made  parties 
to  the  proceeding  was  an  indirect  invitation  to  them  to  answer 
the  accusation  of  the  complainant. 

So  far  as  the  defense  interposed  by  these  parties  goes  to  tlie 
merits  of  the  controversy,  it  rests  ultimately  upon  two  propo- 
sitions. One  is,  that  under  the  schedule  of  rates  fixed  by 
the  Bogue  arbitration  Eau  Claire  is  now  paying  less  for  the 
transportation  in  question  then  the  lower  Mississippi  towns,  in 


proportion  to  their  rfs/xctin'  distances  from  the  common  markets; 
tlu'  otlier  is,  thai  any  intcrferoiico  with  a  system  of  charges  which 
mmu'n»us  carriers  iiave  so  hmg  enlorced,  and  to  which  the 
luinluT  iiitcii'sts  of  so  many  towns  have  become  adjusted,  would 
result  in  a  dcmorali/.ing  "rate  war"  between  these  competing 
roads,  and  inllict  injury  upon  other  localities  much  greater  than 
auv  ad\aiitai,fc  which  might  accrue  to  Eau  Claire. 

The  lirst  of  these  positions  is  readily  seen  to  be  untenable. 
The  doi'lrine  that  transportation  charges  should  be  in  propor- 
ti«»n  lo  the  distances  between  different  points,  where  those  dis- 
tanrrs  (ire  ;i  read  if  dixsiniilar,  has  never  been  advocated  by  the 
railroads  or  recommended  by  the  Conmiission.  It  may  be  the 
rule  to  which  taritl:'  construction  will  some  time  approximate, 
but  there  is  no  opportunity  for  its  application  under  present 
conditions.  To  fix  the  rate  for  a  thousand  miles  at  twice  the 
sum  prescribed  for  half  the  distance  would  be  most  arbitrary  and 
intolerable.  It  does  not  follow,  therefore,  that  Eau  Claire  should 
pay  21]  cents  for  a  haul  of  603  miles  to  Kansas  City,  because 
Keokuk  pays  11. i  cents  for  a  haul  of  213  miles  to  the  same 
place.  The  whole  practice  of  rate  making  is  opposed  to  the 
principle  of  exact  proportion,  and  even  in  theory  there  is  little 
reason  for  its  adoption.  But  distance,  nevertheless,  is  an  ever- 
present  element  in  the  problem  of  rates  and  not  unfrequently 
a  controlling  consideration.  Where  all  tlie  distances  brought 
into  comparison  are  considerable,  and  the  differences  between 
them  relatively  small,  we  should  ex[)ect  substantial  similarity  in 
the  respective  rates,  unless  other  modifying  circumstances  justi- 
licd  a  disparity.  It  is  doubtless  true  that  the  present  adjustment 
of  charges  gives  Eau  Claire  a  rate  per  ton  per  mile  not  greater 
tlian  the  rate  per  mile  from  some  of  tlie  shipping  points  on 
the  lower  Mississippi ;  but  how  does  that  fact  excuse  inequality 
]>i;tween  Eau  Claire  and  places  nearer  by,  whose  competition  is 
iimch  more  active  and  direct?  The  rates  now  in  force  may  be 
relatively  just  as  between  Eau  Claire  and  Davenport,  and  yet 
seriously  unequal  as  between  Eau  Claire  and  Winona.  Every 
hjcality  in  a  producing  region  of  such  wide  extent  as  the  one  in 
question  is  more  or  less  interested  in  the  rates  on  a  common 


EAU  CLAIRE  LUMBER   CASE  245 

commodity  from  all  other  shipping  places  in  that  territory,  but 
at  the  same  time  each  of  them  is  chiefly  concerned  with  the 
rates  from  contiguous  towns  whose  situation  and  facilities  are 
not  greatly  unlike  its  own,  and  which  are  its  actual  and  constant 
rivals  in  the  same  markets.  It  is,  therefore,  no  sufficient  answer 
to  complainant's  charge  to  show  that  the  rate  from  Eau  Claire  is 
not  propoi'tionally  higher  tlian  the  rates  from  remote  lumber 
towns  in  Missouri  and  Southern  Iowa  which  only  indirectly  and 
casually  compete  with  Eau  Claire  ;  nor  does  any  suggestion 
come  from  the  interveners  in  this  case  which  seems  to  counter- 
act the  force  of  the  admission  made  by  Mr,  E.  P.  Ripley,  Third 
Vice  President  of  the  Milwaukee  road,  that  "  there  are  no  dis- 
similar conditions  existing  at  Winona,  La  Crosse  and  Minne- 
apolis, as  compared  with  Eau  Claire,  which  would  justify  the 
charge  of  a  higher  rate  per  car  per  mile  on  lumber  from  Eau 
Claire  to  Missouri  river  points  than  from  the  points  first  named 
except  that  they  are  farther  from  the  supply,  and  it  costs  more 
to  get  the  logs  there."  This  statement  seems  to  us  a  confes- 
sion of  injustice  to  the  shippers  of  Eau  Claire,  which  is  neither 
explained  nor  excused  by  any  facts  bearing  legitimately  upon  the 
rates  in  question.  The  discrimination  is  admitted,  and  stands 
without  adequate  defense. 

If  rates  from  diiferent  points  of  shipment  to  common  terminals 
could  properly  be  fixed  on  the  basis  of  mileage,  there  would  be 
great  persuasiveness  in  the  argument  of  the  learned  counsel  for 
the  Atchison  road,  who  contends  that  the  relief,  to  which  he  vir- 
tually concedes  Eau  Claire  is  entitled,  can  be  effectively  secured 
only  by  increasing  the  rates  from  La  Crosse  and  Winona.  But 
charges  for  distances  greatly  dissimilar  cannot  be  adjusted  on 
that  principle,  and  it  furnishes  no  practical  rule  for  establishing 
rates  fiom  different  places  unequally  remote  from  the  sanui  des- 
tination. It  may  be  that  the  rates  from  these  northerly  towns 
are  generally  too  high  in  comparison  with  the  rates  from  lower 
Mississippi  points,  but  that  question  is  not  before  us  and  we 
have  no  occasion  to  consider  it  in  tliis  proceeding.  The  distinct 
issue  now  presented  is  the  relative  reasonableness  of  the  Eau 
Claire  rate,  and  that  must  mainly  be  determined  by  comparing 


240  i:.\ll,\\  .\\'    TKOI'.LEMS 

it  with  ilu'  nitos  rioiii  tlic  neighboring  towns,  similar  in  size, 
siluution  anil  volnnu'  of  (•()in|)i'ling  tranic,  and  at  ai)proxinKitely 
thf  same  ilislanco  from  common  markets.  Scaring  in  mind,  also, 
tliat  since  this  investigation  was  commenced  all  these  rates  have 
l)ocn  advanced  by  an  addition  ccjual  to  fifty  per  cent  of  the  rate 
upon  which  the  others  wcie  based,  viz.,  the  ten-cent  rate  from 
Chicago  to  the  Missouri  river,  we  deem  it  quite  unsuitable  to 
attempt  the  correction  of  the  inequality  complained  of  by  order- 
ing a  further  advance  in  the  rates  from  competing  points  in  the 
vicinity  of  Eau  Claire.  For  this  reason  it  is  unnecessary  to  dis- 
cuss the  power  of  the  Commission,  in  dealing  with  discrimina- 
tions between  different  localities,  to  require  an  increase  in  rates 
deemed  relatively  preferential. 

The  further  general  argument  against  a  reduction  of  the  Eau 
Claire  differential  does  not  persuade  us  that  the  present  rate 
should  be  continued.  This  impression  involves  some  consider- 
ation of  the  Bogue  award  as  it  affects  the  town  making  this  com- 
plaint, and  the  consequences  to  be  apprehended  from  lowering 
the  lumber  rate  at  that  point.  The  most  noticeable  fact  in  this 
connection  is  that  the  results  a})parently  experienced  do  not 
accord  with  the  principle  upon  which  that  award  avowedly  pro- 
ceeds. Mr.  Bogue  expressly  declares  the  question  to  be,  "  What 
rate  will  enable  each  line  party  to  this  arbitration  to  place  its 
fair  proportion  of  lumber  in  the  territory  under  consideration  ?  " 
This  appears  to  us  equivalent  to  asking,  "  What  rate  will  enable 
each  town  in  this  territory  to  place  its  fair  proportion  of  lumber 
in  the  common  markets  ?  "  for  the  arbitrator  surely  did  not  intend 
to  imply  that  a  "  line  "  which,  as  compared  with  some  rival  road, 
gets  its  "  fair  proportion  "  of  lumber  tonnage,  taking  into  account 
the  aggregate  shipments  from  all  the  towns  which  it  serves,  may 
so  discriminate  between  those  towns  as  to  stimulate  production  at 
one  and  prevent  it  at  the  others.  The  Milwaukee  road,  for 
instance,  may  have  a  "  fair  proportion  "  of  the  lumber  business 
under  the  present  schedule,  but  that  circumstance  furnishes  no 
reason  for  favoring  La  Crosse  and  Winona  at  the  expense  of 
Eau  Claire.  It  could  not  have  been  the  design  of  Mr.  Bogue  to 
equalize  this  traffic  between  the  railroads  without  regard  to  the 


EAU  CLAIRE   LUMBER  CASE  247 

interests  of  competing  localities,  and  his  award  does  not  appear 
to  have  been  so  interpreted  by  the  carriers.  What  he  evidently 
intended  was  that  lumber  should  cost  the  producer  approxi- 
mately the  same  when  delivered  at  destination,  whether  manufac- 
tured at  one  place  or  another.  Increased  charges  for  transportation 
were  to  offset  advantages  of  location  or  other  natural  facilities 
for  cheap  production.  In  this  way  the  tonnage  was  to  be  fairly 
divided  between  the  roads,  and  the  prosperity  of  all  these  towns 
secured  by  enabling  them  to  compete  on  an  even  footing  in  the 
common  markets.  But  the  rate  prescribed  for  Eau  Claire  hardly 
permitted  a  result  consistent  with  this  theory.  As  it  seems  to  us, 
this  town  has  been  placed  at  a  manifest  disadvantage.  So  far 
from  enjoying  equal  opportunity  with  its  rivals,  it  appears  to 
have  been  overweighted  with  a  differential  which  has  excluded 
it,  to  a  great  extent,  from  the  field  of  competition.  A  number 
of  its  establishments  have  gone  out  of  business,  its  industrial 
development  has  been  checked  and  its  population  seriously 
diminished.  While  neighboring  towns  have  been  prosperous, 
Eau  Claire  has  not  held  its  own.  Tliese  adverse  consequences 
may  not  have  been  caused  by  the  operation  of  the  Bogue  award, 
but  no  other  explanation  is  suggested.  Obviously,  such  an  out- 
come was  not  designed,  and  the  fact  that  it  has  occurred  indi- 
cates an  injustice  to  this  locality  which  ought  to  be  corrected. 

We  are  not  to  be  understood  as  indorsing  the  principle  which 
governs  that  award.  On  the  contrary  we  consider  it  radically 
unsound.  That  rates  should  be  fixed  in  inverse  proportion  to 
the  natural  advantages  of  competing  towns,  with  the  view  of 
equalizing  "  commercial  conditions,"  as  they  are  sometimes  de- 
scribed, is  a  proposition  unsupported  by  law  and  quite  at  vari- 
ance with  every  consideration  of  justice.  Each  community  is 
entitled  to  the  benefits  arising  from  its  location  and  natural 
conditions,  and  any  exaction  of  charges  unreasonable  in  them- 
selves or  relatively  unjust  by  which  those  benefits  are  neutralized 
or  impaired,  contravenes  alike  the  provisions  and  the  policy  of 
the  statute.  There  is  no  occasion  for  enlarging  upon  this  point, 
as  it  is  only  incidentally  involved  in  the  discussion.  Our  chief 
object  in  commenting  on  the  Bogue  award  in  this  connection  is 


•J IS  i;.\ii.\\.\\    i'i;()r.iJ':MS 

to  draw  attontii)n  to  tlu'  fact  that  its  declared  purpose,  so  far  as 
Kail  Claire  is  i-oiiccrucd,  has  not  been  accomplished.  Its  effect 
upon  that  town  has  proved  opi)ressive.  Even  if  we  could  accept 
till'  tiuH)ry  upon  which  it  is  based,  we  should  still  be  convinced 
that  the  rate  lixod  for  Kau  Claire  was  excessive,  because  its  oper- 
ation has  prevented  that  town,  as  it  seems  to  us,  from  retaining 
its  "  fair  pi'oportion  "  of  the  lumber  business.  As  no  such  result 
was  intended,  the  rate  which  produced  it  cannot  be  upheld  by 
the  rnle  adopted.  *  *  *  *  * 

We  are  unable  to  discover  how  other  localities  can  reasonably 
object  to  a  more  equitable  rate  for  Eau  Claire,  and  our  belief  is 
that  apprehensions  based  on  a  reduction  at  that  point  are  not 
well  founded.  Relatively  lower  charges  may  enable  Eau  Claire 
to  increase  its  lumber  production,  but  that  this  will  result  in 
serious  injury  to  competing  towns  is  an  unwarranted  assump- 
tion. Remote  places  on  the  lower  Mississippi  can  scarcely  be 
affected  by  the  removal  of  inequalities  between  Eau  Claire  and 
its  neighboring  rivals,  and  the  latter  cannot  justly  complain  be- 
cause the  former  is  accorded  a  rate  fairly  proportioned  to  their 
own.  The  relative  volume  of  lumber  shipments  from  La  Crosse 
and  Winona  may  be  somewhat  reduced  by  lower  charges  at 
Eau  Claire,  but  any  such  effect  will  be  attributaljle  to  natural 
advantages  of  which  that  town  cannot  justly  be  deprived.  In 
short  we  see  no  reason  why  justice  to  Eau  Claire  should  work 
injustice  to  any  other  community,  much  less  result  in  the 
general  disturbance  of  an  established  industry. 

Nor  will  any  such  consequences  follow  a  reduction  of  the  Eau 
Claire  differential  as  would  justify  other  carriers  in  lowering 
their  rates  at  competing  points,  for  the  purpose  of  preserving  the 
eo-relation  of  rates  created  by  the  Bogue  arbitration.  Undoubt- 
edly those  roads  have  it  in  tlieir  power  to  continue  the  pres- 
ent disparity,  but  we  do  not  anticipate,  and  certainly  cannot 
assume,  that  they  will  resort  to  such  inconsiderate  and  arbitrary 
action  in  order  to  nullify  the  lawful  order  of  this  Commission. 
Even  if  we  believed  otherwise,  it  would  still  be  our  duty  to 
render  a  decision  in  accordance  with  our  convictions,  and  thus 
place  the  responsibility  upon  them,  if  they  should  attempt  to 
defeat  our  ruling. 


EAU   CLAIKE  LUMBER   CASE  249 

A  further  position  was  taken  in  this  proceeding  wliich  is 
apart  from  the  merits  of  the  principal  issue.  Tlie  roads  which 
were  made  parties  at  the  request  of  the  original  defendant 
insist  that  no  case  has  been  made  against  them,  and  that  the 
Commission  has  no  authority  to  include  them  in  any  order 
based  upon  the  complaint  of  Eau  Claire.  We  are  disposed  to 
agree  with  this  contention.  The  sole  complaint  in  this  case  is 
discrimination,  and  Eau  Claire  is  the  sole  complainant.  It  is 
not  easy  to  see  how  any  carrier  can  "discriminate"  against  a 
town  which  it  does  not  reach,  and  in  whose  carrying  trade  it 
does  not  participate.  None  of  the  roads  so  brought  into  the 
case  run  to  Eau  Claire  or  engage,  even  indirectly,  in  the  trans- 
portation of  lumber  from  that  point.  Of  what  offense  against 
that  town  can  they  be  legally  guilty  ?  It  would  be  quite  absurd 
to  charge  a  railroad  with  giving  preference  or  advantage  to  a 
community  which  it  does  not  serve,  and  it  is  equally  illogical  to 
say  that  it  can  prejudice  or  discriminate  against  such  a  com- 
munity. All  these  terms  imply  comparison,  and  the  basis  of 
comparison  is  wanting  unless  the  rates  compared  are  made  by 
the  same  carrier.  These  views  are  so  fully  concurred  in  by 
counsel  for  the  respective  parties  that  further  argument  is  un- 
suitable. They  lead  to  the  conclusion  that  no  order  can  prop- 
erly be  made  in  this  proceeding  against  the  roads  which  do  not 
run  to  Eau  Claire.  This  determination  must  also  include  the 
intervening  manufacturers  and  dealers,  who  have  obviously 
no  standing  in  the  case  independent  of  the  lines  which  extend 
from  their  respective  localities.  It  does  not  follow  that  these 
roads  will  be  legally  free  to  reduce  their  rates  at  other  points 
to  correspond  with  any  lower  rate  which  may  be  fixed  for  Eau 
Claire.  They  have  responded  to  the  demand  that  they  should 
defend  the  differential  complained  of,  and  they  have  endeavored 
to  justify  it  by  evidence  and  argument.  They  have  presented 
their  case  and  will  be  formally  notified  of  our  decision.  While 
they  are  not  legally  connected  with  the  rate  claimed  to  be  exces- 
sive, and  not  technically  subject  to  an  order  for  its  correction, 
they  will  have  no  better  right  to  render  it  ineffectual  than  they 
would  have  to  openly  disregard  a  direction  clearly  within  the 
scope  of  our  authority. 


2r,o  i;\ii.\\\\    iM;»>r,TJ':MS 

Thf  attitude  of  till'  Omaha  road  is  somewhat  peculiar.  It 
was  not  proi-oeiUMl  aL^ahisl  originally,  and  the  Milwaukee  com- 
\)iiu\  did  not  ask  to  have  it  made  a  defendant.  It  voluntarily 
si>ught  an  opportunity  to  oppose  the  complainant,  and  was  made 
u  party  on  its  own  application.  After  engaging  in  the  litiga- 
tion witlj  considerable  vigor,  it  now  earnestly  asks  to  be  ex- 
empted from  any  order  reducing  the  Eau  Claire  differential. 
These  circumstances  might  well  justify  us  in  denying  this  re- 
(piest,  but  we  incline  to  the  opinion  that  it  should  be  granted. 
Measured  by  the  lumber  rates  which  it  maintains  at  other  places 
on  its  line,  the  Omaha  road  cannot  be  said  to  discriminate 
against  Eau  Claire,  nor  is  it  charged  with  enforcing  rates  at 
different  points  which  arc  relatively  unequal.  For  this  reason 
nmch  embarrassment  might  result  to  that  company  from  an 
order  recjuiring  it  to  reduce  its  rate  at  the  place  in  question, 
and  as  such  an  order  is  not  demanded  by  the  complainant  or 
deemed  necessary  for  the  relief  which  it  seeks,  we  are  disposed 
to  leave  that  carrier  the  option  of  accepting  the  Eau  Claire 
rate  prescribed  for  the  Milwaukee  company  or  going  out  of  the 
Eau  Claire  business.  No  order,  therefore,  will  be  made  against 
the  Omaha  road  at  this  time,  but  the  case  will  be  held  as 
against  that  company  for  such  directions  as  may  hereafter  seem 
to  be  required.  ***** 

We  hold  that  the  lumber  rates  in  question  discriminate  against 
the  shippers  of  Eau  Claire,  and  that  such  discrimination  is  unjust 
and  unlawful.  The  undue  prejudice  and  disadvantage  to  which 
P2au  Claire  is  thus  subjected  consists  generally  in  the  lower  rela- 
tive rates  accorded  to  competing  towns,  especially  those  granted 
to  La  Crosse  and  Winona,  and  tlie  complainant  is  entitled  to  an 
order  correcting  the  inequality  ))etween  these  rival  places. 

The  extent  to  which  the  Eau  Claire  differential  should  be 
reduced  has  been  the  sul)ject  of  much  deliberation.  We  have 
not  considered  it  as  an  abstract  proposition,  based  on  mileage 
and  cost  of  service,  but  have  endeavored  to  make  proper  allow- 
ance for  other  existing  circumstances  and  actual  conditions.  It 
is  our  desire  to  prescribe  a  rate  which  will  be  reasonably  just  to 
Eau  Claire,  and  which  the  Milwaukee  road  will  be  fairly  satisfied 


EAU  CLAIRE  LUMBER   CASE  251 

to  accept.  No  mathematical  rule  has  been  followed  and  no  par- 
ticular theory  applied,  but  that  rate  has  been  selected  which,  on 
the  whole,  best  satisfies  our  judgment.  To  a  certain  extent  our 
determination  is  arbitrary,  but  equally  so  is  the  fixing  of  a  rate 
in  the  first  instance.  As  the  injustice  which  Eau  Claire  suffers 
arises  mainly  from  the  lower  rates  at  La  Crosse  and  Winona, 
the  rate  from  the  former  should  bear  a  fixed  and  permanent 
relation  to  the  rates  from  the  latter,  independent  of  the  Chicago 
rate  upon  which  all  the  others  are  based  under  the  Bogue  arbi- 
tration. Taking  everything  into  account,  we  think  the  rate 
from  Eau  Claire  should  not  exceed  the  rate  from  La  Crosse  and 
Winona  by  more  than  2  cents  per  hundred  pounds,  when  the 
latter  rate  is  not  over  11  cents  per  hundred;  and  that  such 
excess  over  the  present  rate  of  16  cents  from  La  Crosse  and 
Winona  should  not  be  greater  than  21  cents  per  hundred. 
Compared  with  the  16-cent  rate  now  in  force  at  these  compet- 
ing towns  the  rate  thus  fixed  for  Eau  Claire  will  be  higher  by 
$8.75  per  car;  and  the  rate  per  car  per  mile  and  per  ton  per 
mile  to  the  several  Missouri  river  markets  will  still  be  consider- 
ably greater  from  Eau  Claire  than  from  La  Crosse  or  Winona. 
All  things  considered,  however,  we  believe  that  an  addition  of 
2\-  cents  to  the  present  rate  from  those  places  will  not  be  unjust 
to  Eau  Claire,  and  that  a  greater  reduction  in  the  differential 
now  in  force  against  that  town  should  not  at  this  time  be 
required.  If  the  operation  of  this  rate  fails  to  give  equitable 
results,  the  complainant  will  not  be  debarred  from  making  a 
further  application  for  relief.  *  *  * 

The  order  of  the  Commission  is  that  from  and  after  the  tenth 
day  of  July,  1892,  the  Chicago,  Milwaukee  et  St.  Paul  Rail- 
way Company  cease  and  desist  from  charging,  collecting,  or 
receiving  for  or  on  account  of  lumber  transported  by  it,  in  car- 
load quantities,  from  Eau  CLaire,  Wisconsin,  to  the  various  Mis- 
souri river  points  mentioned  in  this  report,  any  greater  sum  or 
amount  than  two  and  one-half  cents  per  hundred  pounds  more 
than  shall  or  may  from  time  to  time  be  charged,  collected  or 
received  by  that  company  for  the  like  transportation  from  the 
towns  of  La  Crosse  and  Winona  aforesaid. 


IX 

RKLATIVE   RATES 

TiiK  Savannah  Naval  Stokes  Case^ 

Facts 
Clkmknts,  Commissioner :  *  *  *  * 

1.  The  complainants  are  the  Savannah  Bureau  of  Freight 
&  Transportation,  an  association  of  business  men  of  the  city  of 
Savannah,  Ga.,  organized  to  protect  the  transportation  interests 
of  that  city,  and  certain  general  mercliants,  naval-stores  manu- 
facturers and  cotton  shippers,  most  of  whom  are  located  along 
the  line  of  the  Pensacola  &  Atlantic  division  of  the  Louisville 
«S:  Nashville  Railroad.  The  defendant  railroad  and  steamship 
companies  are  severally  common  carriers  and  engaged  in  the 
interstate  transportation  of  freight  articles.  The  lines  of  the 
defendants,  the  Alabama  Midland  Railway  Company,  the  Savan- 
nah, Florida  &  Western  Railway  Company  and  the  Charleston 
&  Savannah  Railway  Company,  are,  with  other  lines  of  road, 
operated  l/y  the  "  Plant  System." 

2.  The  Pensacola  &  Atlantic  division  of  the  Louisville  & 
Nashville  Railroad  System  extends  from  Pensacola,  Fla.,  to 
River  Junction,  Fla.,  a  distance  of  IGl  miles.  At  River  Junc- 
tion it  connects  with  the  Savannah,  Florida  &  Western  Railway 
for  Savannah  (Plant  System),  and  also  with  the  Florida  Central 
&  Peninsuhir  Railroad  (Seaboard  Air  Line)  for  Jacksonville  and 
Savannah.  The  distance  from  River  Junction  to  Savannah  by 
the  former  route  is  259  miles,  and  by  the  latter  route  it  is  347 

'  Decided  .January  8,  1000.  Interstate  Commerce  Reports,  Vol.  VIII,  pp.  376- 
408.    Sustained  by  the  United  States  Circuit  Court.    118  Fed.  Rep.  613. 

The  main  contention  in  this  case  related  to  rates  on  naval  stores,  turpentine 
and  rosin  ;  but  inasmuch  as  the  same  principles  involved  are  more  simply  and 
briefly  .stated  with  reference  to  rates  on  cotton,  that  Issue  is  mainly  described 
in  this  abstract.  —  Ed. 

2.52 


THE  SAVA"NNAH  NAVAL   STORES  CASE 


253 


miles.  The  distance  from 
River  Junction  to  Pensa- 
cola  is  161  miles,  and  as 
Pensacola  is  distant  from 
Mobile  and  New  Orleans 
104  miles  and  245  miles, 
respectively,  the  distance 
from  River  Junction  to 
Mobile  and  New  Orleans 
is  265  miles  and  406  miles, 
respectively. 

The  Pensacola  &  At- 
lantic division  lies  wholly 
within  the  State  of 
Florida.  It  was  built  l)y 
the  Pensacola  &  Atlantic 
Railroad  Company  with 
the  assistance  of  the 
Louisville  &  Nashville 
Railroad  Company,  and 
subsequently  purchased 
under  a  mortgage  sale  by 
the  latter  comjDany.  The 
State  of  Florida  granted 
to  the  Pensacola  &  At- 
lantic Railroad  Company 
3,890,619  acres  of  land. 
This  company  had  sold  of 
said  grant  up  to  June  12, 
1891,668,590.05  acres  for 
1552,330.50.  The  Louis- 
ville &  Nashville  Railroad 
Company  from  June  12, 
1891,  to  April  30,  1897, 
sold  571,985.85  acres  for 
*516,503.76.  Some  of 
the  deeds,  however,  were 


•J,  I  KAII.W.W     I'KOl'.I.KMS 

i-uiu-i'leil,  and  the   total    lU't   s:iK-s   I)}-  both   roads  amounted  on 
April  30,  ISO",  to  ltl>r),4Sl.;'.4  ac-res  for  .ii<S(;0,;U3.G5. 

Aci'ordini;  toastateniont  imt  in  evidence  lor  the  defense,  the 
iN'usaeola  t\:  Atlantie,  considered  as  a  distinct  line,  does  not  earn 
sullicient  to  pay  ojterating  expenses  and  interest  on  its  lixed 
charges.  It  appears  that  the  Louisville  &  Nashville  has  been 
operating'  the  road  since  the  beoinning  of  the  year  1885,  and 
that  it  bought  the  property  under  foreclosure  sale  in  May,  1891. 
Tlie  road  is  operated  in  connection  with  the  other  portions  of 
this  large  system,  and  serves  as  a  coiniection  with  the  Plant  Sys- 
tem and  Florida  Central  &  Peninsular  in  Florida.  The  Louis- 
ville \'  Nashville  Railroad  Company  is  solvent  and  prosperous. 
It  has  increased  its  funded  debt  from  !f;79,158,6G0  in  1895  to 
."jl  10,693,060  in  1899,  and  during  the  fiscal  year  ended  June 
30,  1899,  it  paid  its  accruing  funded  debt  obligations  and  de- 
clared a  dividend  of  3i  per  cent  on  its  stock.  The  amount  of 
stock  outstanding  was  reported  at  $54,911,520. 

3.  West  Florida,  through  which  the  Pensacola  &  Atlantic 
division  runs,  is  very  sparsely  settled  between  Pensacola  and 
River  .Junction,  the  termini  of  the  road,  there  being,  according 
to  the  census  of  1890,  no  town  on  the  line  except  the  city  of 
Pensacola,  with  a  population  of  1000  inhabitants.  The  volume 
of  traffic  originating  along  the  road  is  comparatively  small.  The 
principal  articles  received  for  shipment  are  cotton,  naval  stores 
and  lumber.  Some  wool  and  a  few  melons  are  also  shipped. 
According  to  the  census  of  1890  Pensacola  had  a  population  of 
11,750  inhabitants  and  Savannah  a  population  of  43,189.  Lum- 
ber from  Pensacola  &  Atlantic  stations  is  shipped  principally  to 
Pensacola,  one  of  the  largest  markets  for  exporting  lumber  in 
sail  vessels  along  the  coast.  Savannah,  Ga.,  is  the  largest  naval- 
stores  market  in  the  world,  while  Pensacola  is  a  small  market 
for  rosin  and  turpentine,  receiving  these  commodities  princi- 
pally from  stations  on  the  Louisville  &  Nashville  system. 
******** 

5.  The  Louisville  &  Nashville  Railroad  Company  does  not 
own  or  control  any  line  of  road  entering  Savannah.  In  the 
transportation  of   cotton    or   naval   stores    to    Savannah   from 


THE   SAVANNAH  NAVAL   STORES   CASE  255 

Pensacola  &  Atlantic  stations  the  interest  of  that  company  ends 
with  the  delivery  to  its  connection,  the  Savannah,  Florida  & 
Western  Railway  Company  or  the  Florida  Central  &  Penin- 
sular Railway  Company,  at  River  Junction.  The  only  revenue 
it  can  receive  from  east-bound  shipments  is  for  the  short  haul 
to  River  Junction.  The  conditions  are  reversed  on  traffic  going 
westward. 

Most  of  the  naval  stores  shipped  from  Pensacola  &  Atlantic 
stations  westward  are  ultimately  destined  to  interior  points,  such 
as  Louisville,  Cincinnati  and  Chicago,  and  on  these  shipments 
the  Louisville  &  Nashville  generally  receives  a  long  haul  from 
Pensacola.  The  Louisville  &  Nashville  therefore  has  a  substan- 
tial interest  in  having  this  freight  move  west  to  or  through  Pen- 
sacola instead  of  east  via  River  Junction  to  Savannah  or  other 
destinations,  and  its  rates  are  made  with  a  view  of  inducing 
such  westward  movement.  Efforts  to  build  up  the  naval-stores 
industry  on  the  Pensacola  &  Atlantic  division  had  failed  until 
about  two  years  prior  to  the  filing  of  the  complaint  in  this  case. 
At  that  time  the  Pensacola  naval-stores  firm  began  business,  and 
the  Louisville  &  Nashville  put  in  a  lower  schedule  of  rates  from 
stations  on  that  division,  pursuant  to  an  agreement  it  had  made 
with  the  Pensacola  firm.  The  rates  to  Savannah  were  not  raised 
when  the  rates  to  Pensacola  were  reduced.  A  result  of  such 
action  on  the  part  of  the  railroad  company  has  been  to  largely 
increase  the  volume  of  shipments  of  this  class  of  traffic  to  Pen- 
sacola. The  proportion  of  the  total  product  of  rosin  and  tur- 
pentine at  the  Pensacola  &  Atlantic  stations  which  formerly 
went  to  Savannah  has  decreased  under  present  rates,  so  that 
very  little  of  either  commodity  is  shipped  to  Savannah. 

A  former  agent  of  the  railroad  company  at  a  station  on  the 
Pensacola  &  Atlantic  division  testified  that  his  salary  was  made 
to  depend  in  some  degree  upon  whether  these  shipments  were 
sent  west  or  east,  that  he  received  a  larger  commission  when  the 
traffic  was  destined  west.  There  is  evidence  to  the  effect  that 
shippers  have  had  difficulty  in  ascertaining  the  rates  in  force  on 
shipments  to  Savannah,  and  also  that  solid  car  loads  of  rosin  or 
of  turpentine  were  required  when  the  destination  was  Savannah, 


•_>:,(',  i;ail\\a\    1'K()i;le.m.s 

wlale  inixinl  viu  loads  wo  re  i)cnuitled  in  the  west-bound  niove- 
nuMit.  Tlu'so  inaclii't's,  if  I'lil'oived,  IlmkI,  as  a  matter  of  fact, 
lo  disrriiiiiiiatf  nnjuslly  ayainsl  sliip[)crs  desiring  to  use  the 
Savannah  market. 

( )n  a  sliiiiincnt  of  rosin  from  Sneads,  Fhi,,  to  Savannah,  the 
l.ouisvilK'  ^:  Nashville  would  receive  15  cents  per  100  pounds, 
or  7')  ci-nls  \)rv  barrel  of  500  pounds,  for  a  haul  of  6  miles  to 
Ivivt-r  . I  uiuiioii,  while  the  connecting  roads,  the  Savannah,  Flor- 
iihi  (N:  Western  or  the  Florida  Central  &  Peninsular,  would  only 
receive  '.Ij  cents  per  100  pounds,  or  46 j  cents  per  barrel  of 
500  pounds,  ft)r  the  haul  respectively  of  259  miles  or  347  miles 
from  Ixiver  Junction  to  Savannah.  On  a  west-bound  shipment 
of  rosiii  from  Sneads  to  Pensacola,  a  distance  of  155  miles,  the 
rate  is  9\  cents  per  100  pounds,  or  47|^  cents  per  barrel  of 
500  pounds,  and  from  Bohemia  to  Pensacola,  a  distance  of  6 
miles,  the  rate  is  5  cents  per  100  pounds,  or  25  cents  per  barrel 
of  500  pounds.  From  De  Funiak  Springs,  which  is  about  half- 
way between  Pensacola  and  River  Junction,  the  Louisville  & 
Nashville  receives  for  the  transportation  of  rosin  7^^  cents  per 
100  pounds  for  the  haul  to  Pensacola,  and  15  cents  per  100 
pounds  to  River  Junction,  as  its  proportion  of  the  through  rate 
to  Savannah. 

Dothan,  Ala.,  on  the  Plant  System,  and  Cottondale,  Fla.,  on 
the  Pensacola  &  Atlantic  division,  are  each  about  294  miles  from 
Savannah.  The  line  of  the  Plant  System  runs  from  Dothan 
north  of  the  Pensacola  &  Atlantic  division  of  the  Louisville  & 
Nashville,  and  connects  with  the  short  branch  to  River  Junction, 
abf)Ut  65  miles  from  Dothan.  The  rate  on  rosin  from  Dothan 
by  the  Plant  System  to  Savannah  is  12  cents  per  100  pounds, 
or  about  8  mills  per  ton  per  mile.     *  *  *  * 

9.  There  are,  however,  some  other  facts  connected  with  the 
question.  The  Louisville  &  Nashville  has  made  these  rates  with 
a  view,  not  only  of  providing  a  market  at  Pensacola  for  naval 
stores  shipped  from  its  Pensacola  &  Atlantic  division,  but  of 
encouraging  the  production  of  such  commodities  in  that  sec- 
tion ;  and  it  is  a  fact  that  the  output  at  its  Pensacola  &  Atlantic 


THE   SAVANNAH  XAVAL   STORES   CASE  257 

stations  is  niueli  greater  than  it  was  before  the  establishment 
of  tlie  present  rates  to  Pensacola.  The  building  up  of  the  Pen- 
sacola  market  has  benefited  producers  and  dealers  along  this 
division.  The  present  rates  to  Savannah  were  in  effect  before 
the  Louisville  &  Nashville  made  these  rates  to  Pensacola,  and 
whatever  wrong  now  exists  has  not  been  caused  by  changes 
in  the  Savannah  rates,  but  by  the  relation  in  rates  as  between 
Pensacola  and  Savannah,  which  causes  the  great  bulk  of  the 
traffic  to  go  to  Pensacola. 

Another  consideration  is  that  the  Louisville  &  Nashville  by 
inducing  this  traffic  to  go  to  Pensacola  is  able  to  secure  return 
local  loading  for  cars  which  have  been  used  to  haul  supplies 
from  or  through  Pensacola  to  its  Pensacola  &  Atlantic  sta- 
tions. It  must  also  furnish  cars  for  naval-stores  shipments  to 
Savannah,  but  it  cannot  rely  upon  those  cars  coming  back  with 
supplies  for  stations  on  that  division.  The  car  passes  from  its 
control  at  River  Junction,  and  it  may  reach  its  line  again  at 
some  point  far  distant  from  its  Pensacola  &  Atlantic  division. 
This  might  not  be  material  with  free  interchange  of  cars  carry- 
ing- a  large  traffic  to  and  from  the  Pensacola  &  Atlantic  divi- 
sion,  but  it  is  of  some  importance  in  view  of  the  present  small 
volume  of  business  which  is  done  at  points  on  that  part  of  the 
Louisville  &  Nashville  system. 

It  is  urged  by  the  Louisville  &  Nashville  that  these  rates  to 
Pensacola  are  applied  in  large  degree  on  naval  stores  which  are 
reshipped  from  Pensacola  to  points  north,  like  Cincinnati  and 
Louisville,  and  that  it  thereby  gets  a  long  haul  which  it  could 
not  obtain  from  shipments  to  Savannah.  The  rates  to  Pensa- 
cola are  not  necessarily  the  proportion  which  the  Louisville  & 
Nashville  must  take  into  account  in  fixing  rates  on  shipments 
from  the  Pensacola  &  Atlantic  stations  to  Louisville  or  Cincin- 
nati. It  can  make  low  rates  over  its  own  line  for  the  long  haul 
to  those  points,  with  no  other  regard  to  the  local  rates  to  Pensa- 
cola than  that  the  charge  to  Cincinnati  or  Louisville  should  not 
be  less  than  the  rate  to  Pensacola.  It  does  in  fact  make  through 
rates  from  its  Pensacola  &  Atlantic  stations  via  Pensacola  to 
various  points  which  are  considerably  less  than  the  sum  of  rates 


o-,v;  K'AII.W W    I'KOr.LEMS 

to  aiitl  fnMii  l\>iis;u'(il;i.  Tlu'  Louisville  &  Nashville  has  in  effect 
;i  s|HH'i;il  rati'  ovi'v  its  own  line  of  25  cents  on  turpentine  from 
l\'nsaiH)l;v  to  ICvansville,  Ind.,  a  distance  of  021  miles.  This 
is  no  Mutrc  I  ban  the  share  it  exacts  out  of  the  through  rate  to 
Savannah  from  [)oints  on  the  Pensacola  ifc  Atlantic  division  for 
which  it  carries  the  turpentine  no  greater  distance  than  155 
miles  from  lioheniia  to  River  Junction,  and  its  haul  to  River 
.1  unction  mav  he  as  low  as  6  miles.  The  Louisville  &  Nashville 
rates  to  Pensacola  are  intended  to  draw  naval  stores  to  that 
market  for  sale  and  suhsequent  reshipment,  and  the  Louisville 
«S:  Nashville  secures  the  carriage  of  all  shipments  from  Pensa- 
cola. The  roads  to  Savannah  make  naval-stores  rates  low  to 
Savannah,  not  for  consumption  there,  but  because  it  is  a  mar- 
ket, a  point  of  concentration  and  reshipment,  for  such  stores. 
A  large  part  of  the  domestic  shipments  of  this  traffic  from 
Savannah  is  shipped  north  by  water,  and  the  Plant  System 
and  Florida  Central  &  Peninsular  must  share  the  rail  shipments 
from  Savannah  with  the  other  roads  entering  that  city.  The 
Louisville  &  Nashville  can  justly  claim  that  its  rates  on  naval 
stores  to  the  near-by  market  of  Pensacola  from  these  Pensacola 
&  Atlantic  division  stations,  as  compared  with  the  through  rate 
to  Savannah,  the  much  more  distant  market,  should  give  some 
advantage  to  Pensacola,  which  it  has  contributed  largely  to  build 
up  as  a  concentrating  point  for  these  commodities. 

11.  Both  upland  and  sea-island  cotton  are  produced  along  the 
line  of  the  Pensacola  &  Atlantic  division,  and  about  10  per  cent 
of  the  crop  is  of  the  long  staple  or  sea-island  variety.  The  sea- 
island  grade  is  generally  worth  3  or  4  cents  a  pound  more  than 
upland  cotton.  Most,  if  not  all,  of  the  sea-island  cotton  appears 
to  go  to  Savannah.  During  the  year  1896-97  the  shipments  of 
cotton  from  Pensacola  &  Atlantic  stations  to  Savannah,  New 
Orleans  and  Mobile  were  as'  follows  :  To  Savannah,  4077  bales  ; 
to  New  Orleans,  3713  bales  ;  to  Mobile,  2021  bales.  Pensacola  is 
not  a  cotton  market  and  practically  no  cotton  is  shipped  to  that 
point.  The  rate  on  cotton  from  Pensacola  &  Atlantic  stations 
to  Savannah  at  the  time  of  complaint  and  at  the  date  of  the 


THE   SAVAJS^NAH   NAVAL   ST0KE8  CASE  259 

hearing  in  this  case  was  $2.75  per  bale,  and  the  bale  is  estimated 
to  weigh  500  pounds.  This  resulted  in  a  rate  of  55  cents  per 
100  pounds.  The  rate  applied  from  all  stations  and  had  been  in 
effect  for  a  number  of  years.  The  Louisville  &  Nashville  share 
of  the  $2.75  rate  was  $1.75  per  bale  for  its  haul  to  River  Junc- 
tion, while  connecting  roads  only  received  $1.00.  There  are 
no  compresses  on  the  Pensacola  &  Atlantic  division,  and  if  the 
cotton  was  compressed  by  the  carrier  in  transit  it  was  done  by 
the  road  east  of  River  Junction.  Notwithstanding  the  blanket- 
cotton  rate  from  Pensacola  &  Atlantic  stations  to  Savannah  is 
challenged  by  the  complaint  in  this  case,  that  rate  was  increased 
by  the  defendants  after  the  hearing  from  $2.75  to  $3.30  per  bale, 
and  if  for  export  the  rate  was  still  higher,  $3.45  per  bale.  The 
special  export  rate  was  afterwards  canceled,  and  the  rate  to 
Savannah  for  all  purposes  is  now  $3.30  per  bale  of  500  pounds. 
From  most  stations  on  the  Pensacola  &  Atlantic  division  the 
rate  to  Pensacola  was  $1.50  per  bale  of  500  pounds.  A  few 
stations  comparatively  near  Pensacola,  including  Gait  City  and 
Escambia,  took  rates  of  26  and  27  cents,  the  former  being  the 
lowest  rate  to  Pensacola.  These  rates  were  also  in  effect  at  the 
time  of  the  hearing. 

The  rate  on  cotton  from  all  Pensacola  &  Atlantic  stations  to 
Mobile  was,  at  the  time  of  the  complaint,  and  still  is,  $2.00  per 
bale,  and  to  New  Orleans  it  w^as  and  still  is  $2.50  per  bale.  The 
rates  to  Mobile  and  New  Orleans  commence  with  Escambia,  10 
miles  from  Pensacola,  and  include  River  Junction,  161  miles 
from  Pensacola.  The  distance  from  Escambia  to  Mobile  is  114 
miles  and  to  New  Orleans  255  miles.  From  Sneads,  6  miles 
west  of  River  Junction,  these  distances  are  259  miles  to  Mobile 
and  400  miles  to  New  Orleans.  From  Escambia  to  Savannah 
the  distance  is  410  miles,  and  the  distance  from  Sneads  to  Sa- 
vannah is  265  miles.  From  De  Funiak  Springs,  a  central  point 
on  the  Pensacola  &  Atlantic  division,  the  distance  to  Mobile  is 
183  miles  and  to  New  Orleans  324  miles.  That  point  is  distant 
from  Savannah  341  miles.  The  Louisville  &  Nashville  obtained 
$1.75  out  of  the  former  rate  to  Savannah,  and  it  actually  gets 
as  much  or  more  out  of  the  higher  rate  now  in  force.    It  received 


l>(i()  i:\ll, WAN     IMMtr.M'lMS 

that  sum  for  the  short  hjiul  to  lliver  Junction,  and  only  charges 
7.")  cents  nitirc  for,  in  most  cases,  more  than  double  the  distance 
to  New  Orleans.  From  only  three  or  four  Pensacola  &  Atlantic 
stations  near  i\'iis;n'ola  is  the  distance  to  Mobile  less  than  the 
distance  to  Kivcr  .huu'tion,  and  it  is  not  understood  that  any  cot- 
ton is  sent  from  tliose  stations  near  Pensacola.  From  De  Funiak 
Sprine^s  liie  mileage  is  much  greater  to  Mobile  than  to  River 
Junction.  The  rate  to  Pensacola,  Mobile  and  New  Orleans  does 
not  include  the  cost  of  compression. 

It  was  testified  by  the  vice  president  of  the  Louisville  &  Nash- 
ville that  having  reached  a  basis  of,  say,  50  cents  to  55  cents  per 
100  ]n)un(ls  on  cotton,  it  has  been  found  from  experience  that 
that  is  about  the  maximum  rate  which  can  be  secured;  and  we 
find  that  to  be  the  fact  in  this  southern  teiritory. 

On  account  of  risk  of  fire,  bulk  and  loading  expenses,  cotton 
is  n(^t  an  attractive  commodity  to  a  carrier  on  a  short  haul  of  50 
miles  or  less.  The  rate  to  Savannah  is  a  joint  rate,  while  the 
rates  to  Mobile  and  New  Orleans  are  only  those  of  the  Louisville 
&  Nashville.  The  rate  to  New  Orleans  must  be  fixed  with  refer- 
ence to  the  obtainable  price  in  that  large  cotton  market.       * 

It  is  not  found  that  the  entire  rate  of  $2.75  is  excessive, 
unreasonable  or  unjust  in  itself  or  in  comparison  with  the  rate 
to  Mobile  or  New  Orleans  ;  but  we  do  find  that  the  present  rate 
of  83.30  per  bale,  equal  to  3.8  cents  per  ton  per  mile  for  a  haul 
of  341  miles,  is  excessive,  and  that  the  action  of  the  Louisville  & 
Nashville  and  its  connections  to  Savannah  in  advancing  the 
rate  above  the  former  existing  charge  of  <|2.75  per  bale  was 
altogether  unreasonable  and  unjust.  *  *  * 

Cov  elusions 
******** 
We  shall  dispose  of  the  cotton  rate  first.  When  the  complaint 
was  filed  the  rate  was  %'2.1t)  per  bale,  of  which  the  Louisville  & 
Nashville  obtained  $1.75  for  its  short  haul  to  River  Junction. 
This  rate  was  still  in  effect  at  the  time  of  the  hearing.  It  was 
testified  for  the  defense  that  the  rate  of  $2.75  per  bale  was 
rea-sonable,  and  tlie  rate  had  been  in  force  for  a  considerable 


THE   SAVANNAH  NAVAL   STOEES   CASE  261 

period.  It  was  also  asserted  by  the  same  witness  that  a  rate  of 
50  to  55  cents  a  hundred,  equal  to  1^2.50  and  $2.75  per  bale 
of  500  pounds,  was  about  as  high  a  rate  as  could  be  charged 
without  prohibiting  the  shipment.  Under  that  rate,  of  a  given 
year's  crop,  about  4000  bales  moved  to  Savannah,  while  the  re- 
mainder, about  5700  bales,  went  to  Mobile  and  New  Orleans,  but 
the  quantity  sent  to  Savannah  included  the  sea-island  variet}^ 
amounting  to  about  10  per  cent  of  the  total  amount  shipped 
from  the  Pensacola  &  Atlantic  stations,  and  for  which  Savannah 
is  the  principal  market.  Sea-island  cotton  is  more  valuable  than 
upland  cotton,  and  it  may  be  that  it  could  stand  a  somewhat 
higher  rate,  but  the  amount  produced  and  shipped  from  Pensa- 
cola &  Atlantic  stations  is  very  small  as  compared  with  upland 
cotton,  and  the  carriers  in  fixing  their  rates  have  not  made  any 
distinction  between  the  two  kinds.  Some  time  after  the  hearing 
the  carriers  to  Savannah  made  the  rate  from  Pensacola  &  Atlan- 
tic stations  $3.30  per  bale.  This  was  an  increase  of  55  cents. 
The  rate  of  $3.30  per  bale  is  still  in  force.  No  advance  was 
made  in  the  rate  of  $2.00  to  Mobile,  or  in  the  rate  of  $2.50  to 
New  Orleans.  Under  such  a  rate  adjustment  the  cotton  (except 
the  sea-island)  must  go  to  Mobile  or  New  Orleans,  or  the  shipper 
to  Savannah  must  bear  the  large  additional  expense  occasioned 
by  the  advance  of  55  cents  per  bale.  In  making  this  advance  in 
rates  the  carriers  acted  unjustly  and  unreasonably  to  the  pro- 
ducer and  to  the  shipper  of  cotton  carried  from  these  Pensacola 
&  Atlantic  stations,  and  subjected  them  to  unlawful  prejudice. 
The  carriers  to  Savannah,  also,  by  so  advancing  the  cotton  rate 
to  that  citj^  gave  undue  and  unreasonable  preference  and  advan- 
tage to  Mobile  and  New  Orleans  and  to  dealers  in  cotton  at  and 
the  traffic  in  cotton  to  those  places;  and  they  subjected  Savannah 
and  her  cotton  merchants  and  shipments  of  cotton  to  that  mar- 
ket to  wrongful  prejudice  and  disadvantage.  The  whole  advance 
was  unlawful.  It  violated  sections  1  and  3  of  the  Act ;  and  any 
higher  rate  on  uncompressed  cotton  from  any  of  these  Pensacola 
&  Atlantic  stations  to  Savannah  than  the  former  difference  of 
25  cents  per  bale  above  the  rate  in  force  from  the  same  stations 
to  New  Orleans  is  unlawful  under  those  sections.  * 


•_),;o  1^\^,\VA^■  PUor.LEMS 

The  Lduisville  &  Nashville  insists  that  the  near-by  market  of 
Ponsai'ola  is  entitled  to  all  of  this  great  advantage.^  It  claims 
that  the  lower  rates  to  Pensacola  were  necessary  to  create  a 
market  there  for  these  stores,  and,  further,  that  the  carriage  to 
Pensacola  is  only  part  of  its  haul  on  the  great  majority  of  the 
shii)nu'nts,  wiiile  on  shipments  to  Savannah  it  can  only  have 
the  short  haul  to  River  Junction,  where  it  must  turn  the  traillc 
over  to  one  of  its  connecting  roads.  Whatever  difference  in  rates 
may  have  seemed  necessary  at  the  outset  to  create  a  demand  in 
the  Pensacola  market,  it  is  apparent  now,  after  several  years' 
trial,  that  the  rates  to  Savannah  as  compared  with  the  Pensa- 
cola rates  give  an  unwarranted  advantage  to  Pensacola.  In 
endeavoring  to  build  up  a  near-by  market  at  Pensacola,  and  so 
furnish  these  products  with  a  market  in  addition  to  the  one 
existing  at  Savannah,  the  Louisville  &  Nashville  was  acting  in 
the  interest  of  producers  of  and  dealers  in  naval  stores  on  its 
Pensacola  &  Atlantic  division.  It  went  beyond  this,  however, 
and  so  controlled  the  adjustment  of  rates  to  the  two  markets  as 
to  give  Pensacola  a  practical  monopoly  of  the  trade.  A  carrier 
cannot  lawfully  establish  and  maintain  an  adjustment  of  rates 
which  in  practice  prevents  shii)pers  on  its  line  from  availing 
themselves  of  a  principal  market  which  they  have  long  been 
using,  and  confers  a  substantial  monopoly  upon  a  new  market 
in  which,  for  reasons  of  its  own,  it  has  greater  interest.  That 
is  what  has  been  done  in  this  case. 

The  further  and  perhaps  chief  ground  relied  upon  to  justify 
this  abnormal  relation  in  rates  on  traffic  which  is  competitive 
mainly  as  between  Savannah  and  Pensacola  is  that  the  present 
lower  scale  of  rates  to  Pensacola  is  required  to  liold  the  traffic 
for  long  hauls  on  the  Louisville  &  Nashville  system.  This  com- 
pany can  and  does  make  through  rates  on  naval  stores  from  its 
Pensacola  &  Atlantic  division  via  Pensacola  to  numerous  points. 
Its  claim  goes  further  than  this,  however.  It  also  aims  to  com- 
pel shipments  locally  to  Pensacola,  that  it  may  get  the  benefit 

1  The  conclusions  of  the  Commission  as  to  rates  on  naval  stores  are  so 
interwoven  with  those  relating  to  cotton  rates  that  they  are  reproduced  in  full. 
—  Ed. 


THE  SAVANNAH  NAVAL   STOEES  CASE  263 

of  the  reshipments  from  that  point,  and  it  has  the  only  raihoad 
entering  that  city.  A  shipment  billed  and  transported  to  Pensa- 
cola  for  local  delivery  there  constitutes  a  complete  transaction, 
just  as  a  shipment  billed  and  transported  for  delivery  in  Savan- 
nah is  a  complete  transaction.  As  between  two  transactions  of 
this  character  the  Louisville  &  Nashville  may  prefer  itself  in 
the  matter  of  rates  to  the  extent  of  its  fair  interest  as  a  common 
carrier,  but  it  can  no  more  be  permitted  to  create  a  monopoly  in 
its  west-bound  movement  as  compared  with  the  east-bound  than 
Pensacola  can  be  permitted  as  a  new  market  to  have  a  monopoly 
of  the  traffic,  and  so  shut  out  the  old  market  of  Savannah.  We 
hold,  in  other  words,  that  when  a  carrier  makes  rates  to  two  com- 
peting localities  which  give  the  one  a  practical  monopoly  over  the 
other  because  it  can  secure  reshipments  from  the  favored  locality 
and  none  from  the  other,  it  goes  beyond  serving  its  fair  interest, 
and  disregards  the  statutory  requirement  of  relative  equality  as 
between  persons,  localities  and  particular  descriptions  of  traffic. 

Our  ruling  in  Colorado  Fuel  ^  Iron  Co.  v.  Southern  P.  Co., 
6  I.  C.  C.  Rep.  488,  bears  upon  this  point.  In  that  case  the  rate 
to  San  Francisco  on  iron  articles  produced  at  Pueblo,  Colo.,  was 
prohibitive,  while  on  iron  shipped  from  Chicago  to  San  Fran- 
cisco the  rate  was  low.  The  Southern  Pacific  was  the  delivering 
line  in  San  Francisco  on  shipments  from  both  Pueblo,  and  Chi- 
cago, but  it  would  get  a  much  longer  haul  on  Chicago  traffic  sent 
over  a  circuitous  route  via  New  Orleans  than  it  would  on  either 
Pueblo  or  Chicago  traffic  sent  direct  to  San  Francisco.  The  tes- 
timony tended  to  show  that  the  Southern  Pacific  secured  greater 
compensation  if  shipments  came  to  San  Francisco  via  New  Orleans. 
The  Commission  held  that  inequality  in  the  treatment  of  ship- 
pers, having  no  other  justification  than  this  end,  was  indefensible. 

The  Louisville  &  Nashville  insists  also  that  it  is  unusual  for  a 
carrier  reaching  a  seaport  on  its  own  line  to  make  joint  rates  with 
another  carrier  which  will  divert  traffic  originating  on  its  road 
to  a  rival  seaport.  In  the  view  we  take  of  this  contention,  it  is 
unnecessary  to  discuss  whether  this  is  or  is  not  a  railway  prac- 
tice. It  is  not  undeistood  that  tbe  complainants  are  here  asking 
for  an  order  which  will  so  divert  traffic  from  Pensacola  as  to  place 


■2u[  KAILWAV    I'KOl'.LlvMS 

it  at  a  (lisa<lvantai:^i'  as  oompaicd  with  Savannah.  If  a  raih'oad 
(.Miinpany  oannot  soouve  other  than  an  unreasonably  low  share  of 
tlio  joint  rate  to  a  seaport  on  another  road,  it  may  be  justiiied  in 
ileelininj^f  to  join  in  sueh  a  rate,  especially  when  it  can  take  the 
tralVic  to  a  seaport  reached  by  its  own  road ;  but  a  carrier  engaged 
in  transportation  over  the  through  line  finds  no  such  justification 
when  it  is  able  to  secure  ft)r  itself  a  share  of  the  joint  rate  which 
fully  equals  the  rate  established  by  it  for  purely  local  service 
over  like  distances  on  its  own  road.  That  is  this  case  under  the 
readjustment  indicated  by  the  findings. 

We  think  that  readjustment  fully  meets  the  objections  to  the 
com})laint  which  are  raised  by  the  Louisville  &  Nashville  Com- 
pany. It  still  gives  considerable  advantage  to  Pensacola ;  it 
gives  the  Louisville  &  Nashville  for  the  less  service  involved  in 
the  haul  to  River  Junction  on  shipments  to  Savannah  the  same 
compensation  that  it  obtains  on  purely  local  shipments  carried 
for  like  distances  to  Pensacola,  and  on  turpentine  from  the  more 
easterly  stations  it  gives  more. 

We  hold  that  the  present  shares  of  the  Louisville  &  Nashville 
in  the  through  rates  to  Savannah  are  unreasonable  and  unjust, 
and  that  they  operate  to  make  the  entire  through  rates  unjust 
and  unreasonable  as  compared  with  the  rates  charged  by  the 
Louisville  &  Nashville  to  Pensacola  ;  that  because  of  such  exces- 
sive shares  of  the  Louisville  &  Nashville  in  the  through  rates 
to  Savannah  such  through  rates  do,  as  related  to  the  rates  to 
Pensacola,  subject  producers  and  shippers  along  the  Pensacola 
&  Atlantic  division  of  the  Louisville  &  Nashville  Railroad  to 
wrongful  prejudice  and  disadvantage  ;  that  such  through  rates 
as  related  to  the  rates  to  Pensacola  also  subject  Savannah,  naval- 
stores  dealers  in  Savannah,  and  the  traffic  in  naval  stores  to  that 
city,  to  undue  and  unreasonable  prejudice  and  disadvantage,  and 
they  result  in  undue  and  unreasonable  preference  and  advantage 
to  Pensacola,  dealers  in  naval  stores  in  Pensacola,  and  the  traffic 
in  naval  stores  to  that  city.  It  results,  therefore,  that  the  present 
rates  to  Savannah  are  in  violation  of  sections  1  and  3  of  the  Act. 

The  wrong  and  injustice  so  inflicted,  and  the  unjust  favorit- 
ism so  resulting,  would  be  remedied  by  charges  on  rosin  and 


THE  SAVANNAH  NAVAL   STORES  CASE  265 

turpentine  to  Savannah  which  will  embrace  the  proportions  now 
and  for  several  years  accepted  by  the  carriers  east  of  River  Junc- 
tion, and  also  give  the  Louisville  &  Nashville  for  its  hauls  to 
River  Junction  its  full  local  rates  for  approximately  the  same 
distances  to  Pensacola,  with  the  exception  that  on  turpentine 
from  stations  east  of  Mossy  Head  the  rate  to  Savannah  should 
exceed  the  rate  from  Sneads  to  Pensacola  to  the  extent  of  6  cents 
per  hundred  pounds,  thereby  giving  the  Louisville  &  Nashville 
on  turpentine  from  such  stations  more  than  its  local  rate  for  the 
like  distance  to  Pensacola. 

We  determine,  therefore,  that  the  rates  on  rosin  and  turpen- 
tine from  these  Pensacola  &  Atlantic  stations  to  Savannah  should 
bear  the  following  definite  relations  to  the  rates  on  those  com- 
modities to  Pensacola.  The  rate  from  any  such  station  to  Savan- 
nah is  to  be  adjusted  by  adding  to  the  local  rate  of  the  Louisville 
&  Nashville  for  the  distance  to  Pensacola  which  is  nearest  to  the 
distance  from  tliat  station  to  River  Junction  the  present  share 
accepted  by  the  carriers  to  Savannah  from  River  Junction.  Pro- 
vided, however,  that  from  all  stations  east  of  Mossy  Head  the 
rates  on  turpentine  to  Savannah  shall  be  determined  by  adding 
6  cents  to  the  rate  fixed  by  the  Louisville  &  Nashville  from  ' 
Sneads  to  Pensacola,  the  carriers  east  of  River  Junction  accept- 
ing their  present  share  from  such  stations  east  of  Mossy  Head. 
In  the  event  that  the  defendant  carriers  operating  east  of  River 
Junction  should  decline  to  accept  their  present  proportions,  any 
party  may  apply  for  a  further  or  modified  order.  While  the 
Louisville  &  Nashville  share  of  the  Savannah  rate  is  held  to  be 
unreasonable,  we  base  the  remedy  upon  the  relation  of  rates  to 
the  two  competing  markets.  This  will  enable  the  Louisville  & 
Nashville  to  increase  the  rates  to  Pensacola,  or  in  conjunction 
with  its  connections  east  of  River  Junction  reduce  the  rates  to 
Savannah,  or  to  use  both  means  in  conforming  to  the  adjust- 
ment which  appears  to  be  required  by  the  facts  in  this  case; 
provided,  of  course,  that  the  rates  to  Pensacola  should  not  be 
made  unreasonable. 

Order  will  be  issued  in  accordance  with  these  conclusions. 


X 

RELATIVE   RATES 
TiiK  Chattanooga  Case^ 

(^fap  at  p.  154,  supra) 
IvNAiM',  Chdirman :  ***** 

The  complaint  relates  to  the  rates  of  the  defendants  on  the 
six  numbered  classes  of  traffic  and  on  a  large  number  of  com- 
modities from  Boston,  Providence,  New  York,  Philadelphia, 
and  IJaltimore  to  Chattanooga  and  Nashville,  respectively,  both 
by  the  direct  lines  to  Chattanooga  and  via  Chattanooga  to 
Nashville,  and  by  the  lines  via  Cincinnati  to  Chattanooga  and 
via  Cincinnati  to  Nashville,  and  it  charges  : 

First,  That  the  rates  to  Chattanooga  are  unjust  and  unreasonable  in 
themselves,  in  violation  of  section  1  of  the  Act  to  regulate  commerce,  which 
requires  all  rate  charges  for  any  service  rendered  in  the  transportation  of 
property  or  in  connection  therewith  to  be  reasonable  and  just  and  prohibits 
and  declares  unlawful  every  unjust  and  unreasonable  charge. 

Second,  That  the  rates  to  Chattanooga  are  higher  than  for  the  longer 
haul  through  Chattanooga  and  151  miles  on  to  Nashville,  and  are  in  viola- 
tion of  the  provision  of  section  4  of  the  Act  to  regulate  commerce  which 
declarir-s  it  to  be  unlawful  for  any  common  carrier  subject  to  the  provisions 
of  the  Act  "  to  charge  or  receive  any  greater  compensation  in  the  aggregate 
for  the  transportation  of  a  like  kind  of  property  under  substantially  similar 
circumstances  and  conditions,  for  a  shorter  than  for  a  longer  distance  over 
the  same  line,  in  the  same  direction,  the  shorter  being  included  within  the 
longer  distance." 

1  Originally  decided  March  12,  1904.  Interstate  Commerce  Reports,  Vol.  X, 
pp.  111-147.  Decision,  originally  rendered  in  favor  of  Chattanooga  in  1892, 
wxs  sustained  by  both  the  United  States  Circuit  Court  and  the  Circuit  Court  of 
Appeals;  was  then  reversed  by  the  Supreme  Court  (181  U.  S.  29)  under  its  inter- 
pretation of  the  law  in  the  Alabama  Midland  case  (vide,  p.  378,  m/ro), but  with- 
out prejudice  to  the  right  of  the  Commission  to  reopen  the  case.  This  is  the 
ca.se  as  thus  reopened.  The  dissenting  opinion,  herein  reproduced,  represents 
the  claims  of  Chattanooga.  Its  larger  significance  is  set  forth  in  Ripley's  Rail- 
roads: Rates  and  Regulation.  (Index.)  Tlie  .special  map  on  p.  22'J  will  be  found 
serviceable  in  the  study  of  the  case. 

206 


THE  CHATTANOOGA  CASE  267 

Third,  That  "  the  merchants  and  other  business  men  of  Chattanooga 
and  Nashville,  respectively,  comjjete  for  business  largely  in  the  same  terri- 
tory ;  that  the  excesses  of  the  Chattanooga  rates  over  the  Nashville  rates 
amount  in  most,  if  not  all,  instances  to  a  reasonable  profit  on  the  traffic 
and  subject  Chattanooga  merchants  to  an  undue  or  uni-easonable  prejudice 
or  disadvantage  in  such  competition  and  give  Nashville  an  undue  or  un- 
reasonable preference  or  advantage  over  Chattanooga  in  such  competition, 
and  that  the  rates  in  question  to  Chattanooga  and  Nashville  are,  therefore, 
in  violation  of  section  3  of  the  Act  to  regulate  commerce,  which  declares 
unlawful  such  undue  or  vmreasonable  prejudice  or  disadvantage  and  such 
undue  preference  or  advantage." 

It  is  alleged  in  the  complaint  that  if  there  should  be  any 
difference  in~  rates  as  between  Chattanooga  and  Nashville,  such 
difference  should  be  made  by  making  the  Chattanooga  rates 
lower  than  the  Nashville  rates,  because,  (1)  of  Chattanooga's 
greater  proximity  to  the  points  of  shipment,  Boston,  Providence, 
New  York,  Philadelphia  and  Baltimore ;  (2)  of  transportation 
by  the  Tennessee  river  to  Chattanooga ;  and  (3)  of  the  greater 
number  of  rail  lines  which  enter  Chattanooga  and  compete  for 
business  from  those  cities  to  Chattanooga  than  enter  Nashville 
and  compete  for  such  business  to  Nashville.  *  * 

The  defendants  admit  that  the  rates  in  question  are  higher 
for  the  shorter  haul  to  Chattanooga  than  for  the  longer  haul  by 
151  miles  through  Chattanooga  to  Nashville  ;  that  the  rates  are 
correctly  set  forth  in  the  complaint  and  that  they  jjarticipate  in 
those  rates  either  as  members  of  the  lines  to  Chattanooga  and 
through  Chattanooga  to  Nashville,  or  as  members  of  the  lines 
through  Cincinnati  to  Chattanooga  and  to  Nashville,  but  they 
deny  that  those  rates  are  in  violation  of  either  section  1,  3  or  4 
of  the  law  as  charged  in  the  comphiint. 

In  justification  of  the  lower  rates  from  New  York  and  other 
eastern  seaboard  cities  to  Nashville  than  to  Chattanooga,  it  is 
alleged  that  those  rates  were  primarily  made  by  the  Trunk  Line 
roads  through  the  Ohio  river  crossings,  Cincinnati,  Louisville 
and  Evansville,  "  and  are  controlled  by  the  following  competitive 
circumstances  and  conditions  :  " 

First,  Water  competition  by  the  Hudson  river,  the  St.  Lawrence  river, 
the  Erie  canal  and  the  lakes,  which  fixes  the  rail  rates  from  New  York  to 


2l)8  IJAIl.UAN     I'lMtr.lJlMS 

l'hii-u.i;«>  ami  to  wliirli  lallcr  nitvs,  it  is  all('t,'«'tl.  I  lie  ratt's  from  Now  York 
Hiul  »»tlu'r  fustt-rii  soaluianl  citi»'s  to  Ciiu-iimati,  Louisville  aiul  Kvansville 
"urt>  made  t»>  Ix'ar  ctThiiii  fixed  relations." 

St'coud,  Water  coiiipctitioii  lictwocii  Paduoah  and  Kvansville  on  the  Ohio 
river,  on  the  «>ne  hand,  and  Nashville  on  the  Cninberland  river,  on  the 
otlier,  hy  means  of  hoats  on  the  Cuniburland  river  which  connect  with 
boats  on  the  Olno  river. 

'I'hird.  Water  eonnx'lition  from  New  York  and  the  other  eastern  sea- 
board cities  to  Cincinnati,  Louisville  and  Kvansville  by  way  of  the  ocean, 
the  1,'ulf  and  the  Mississii)in  and  Ohio  rivers. 

Fourtlj.  Competition  by  ocean  from  New  York  and  other  eastern  sea- 
board cities  to  Norfolk  and  Newport  News,  Virginia,  and  thence  by  the 
rail  lines,  tlie  Norfolk  &  Western  and  the  Chesapeake  &  Oiiio  railways, 
from  those  cities  to  Louisville,  Cincinnati  and  Kvansville. 

It  is  alleged  that  the  rates  from  said  eastern  seaboard  cities 
to  Cincinnati  and  Louisville  having  been  fixed  by  these  com- 
petitive circumstances  and  conditions,  the  rates  fi'om  said  east- 
ern seal)oard  cities  to  Nashville  cannot  greatly  exceed  the  rates 
to  Cincinnati  or  Louisville  added  to  the  rates  which  can  be  ob- 
tained by  steamboats  from  Cincinnati  or  Louisville  over  the 
Ohio  and  Cumberland  rivers  to  Nashville,  but  that  there  is  no 
effective  open  water  route  from  the  eastern  seaboard  cities  to 
Chattanooga,  nor  from  Cincinnati  or  Louisville  to  Chattanooga 
and  the  water  competition  which  forces  down  the  through  rail 
rates  from  Cincinnati  and  Louisville,  respectively,  to  Nashville, 
does  not  extend  to  Ciiattanooga. 

It  is  further  alleged  that  Nashville  enjoys  a  position  geo- 
graphically which  is  not  enjoyed  by  Chattanooga,  being  prac- 
tically the  center  of  a  circle,  of  which  Cincinnati,  Louisville, 
Kvansville,  Cairo  and  Memphis  may  be  regarded  as  points  on 
the  circumference,  and  that  there  is  a  large  territory  tributary 
to  Cinciiniati,  Louisville,  Evansville,  Cairo  and  Memphis,  south 
of  the  Ohio  river,  which  is  also  tributary  to  Nashville,  and  the 
i-ate  adjustment  to  Nashville  relatively  to  the  points  specified 
alH)ve  has  been,  is,  and  should  be  such  as  to  enable  it  to  do 
busine-;s  in  comparison   with  those  cities. 

The  Southern  Railway  Company  alleges  in  its  answer  that 
all  rates  from  eastern  seaboard  cities  to  Chattanooga  are  fixed 
by  the  ea.stem  lines  and  are  made  relative  to  the  rates  from 


THE  CHATTANOOGA  CASE 


269 


those  cities  to  Atlanta,  Rome,  Birmingham  and  Anniston,  which 
cities  compete  directly  witli  Chattanooga  in  territory  common 
to  those  cities  and  to  Chattanooga,  and  that  this  is  the  basis 
upon  which  the  Chattanooga  rates  are  made. 

The  Louisville  &  Nashville  road  denies  that  it  is  engaged  in 
the  transportation  of  traffic  through  Chattanooga  to  Nashville. 
******** 

It  is  also  alleged  in  behalf  of  the  defendants  that  the  Chat- 
tanooga and  Nashville  rates  are  governed  by  different  classifi- 
cations ;  the  Chattanooga  rates  by  the  Southern  Classification 
and  the  Nashville  rates  by  the  Official  Classification. 

•  Facts 

1.  The  defendants  .  .  .  are  common  carriers  engaged  as  parts 
of  through  lines  and  under  joint  tariffs  of  lates  in  transporting 
traffic  from  New  York  and  other  eastern  seaboard  cities  to 
Chattanooga  and  to  Nashville. 

2.  The  following  table  gives  the  rates  in  question  from 
Boston,  Providence  and  New  York  to  Chattanooga  and  Nash- 
ville, respectively,  on  the  six  numbered  classes  in  cents  per 
hundred  pounds,  and  also  shows  the  excesses  in  cents  per 
hundred  pounds  and  per  car  loads  of  30,000  pounds  of  the 
Chattanooga  rates  over  the  Nashville  rates. 


1 

3 

3 

4 

5 

6 

Chattanooga 

114 
91 

98 
78 

86 
60 

73 
42 

60 
36 

49 

Nashville 

31 

Excess  per  100  lbs.  of  Chattanooga  rates 
Excess  per  car  load  of  30,000  lbs.      .     . 

23 

$69 

20 
$60 

26 

$78 

31 

$93 

24 

$72 

18 

$54 

The  same  excesses  of  the  rates  to  Chattanooga  over  those  to 
Nashville  as  are  shown  in  the  above  table  in  rates  from  Boston, 
Providence  and  New  York,  exist  under  the  rates  from  Phila- 
delphia and  Baltimore. 

The  following  table  [Abridged.  —  Ed.]  gives  the  rates  in  cents 
per  hundred  pounds  from  Boston,  Providence  and  New  York 


•_>7()  iiAii.w  \^■  riior.LKMs 

to  (.'hattanoogfa  and  Nasliville,  respectively,  and  the  excesses  of 
the  Chattanooj^a  rates  over  tlie  Nashville  rates  on  car  loads  of 
30.000  pounds  on  a  few  commodities.  Those  rates  are  given  as 
illustrating  the  differences  in  rates  in  favor  of  Nashville  on  the 
entire  list  of  ctMumodities. 

Commodity  Rates 

Canned  goods  Boston  and  New  York  to  Chattanooga,  C/L  ....  i^O.48 

Canned  goods  Boston  and  New  York  to  Nashville 36 

Difference  on  a  car  load  of  30,000  pounds  in  favor  of  Nashville     .     .  30.00 

(Jreen  coffee  Boston  and  New  York  to  Chattanooga,  C/L 60 

Green  coffee  Boston  and  New  York  to  Nashville 36 

Difference  on  a  car  load  of  30,000  pounds  in  favor  of  Nashville     .     .  72.00 

Agate  ware  Boston  and  New  York  to  Chattanooga,  C/L 73 

Agate  ware  Boston  and  New  York  to  Nashville 42 

Difference  on  a  car  load  of  30,000  pounds  in  favor  of  Nashville     .     .  93.00 

Cartridges  Boston  and  New  York  to  Chattanooga,  C/L 60 

Cartridges  Boston  and  New  York  to  Nashville 42 

Difference  on  a  car  load  of  30,000  pounds  in  favor  of  Nashville     .      .  54.00 

The  same  differences  in  rates  in  favor  of  Nashville  as  are 
shown  m  the  above  table  in  rates  from  Boston,  Providence 
and  New  York,  exist  under  the  rates  from  Philadelphia  and 
Baltimore. 

The  rates  by  all  the  lines  to  Chattanooga  are  the  same  and 
the  rates  by  all  the  lines  to  Nashville  are  the  same. 

3.  Chattanooga  class  rates  are  governed  by  the  Southern 
Classification,  and  Nashville  class  rates  by  the  Official.  A  large 
number  of  articles  are  in  the  same  class  in  both  classifications; 
there  are  some  articles  which  are  classed  higher  under  the  Offi- 
cial Classification  than  under  the  Southern,  and  some  that  are 
classed  higher  under  the  Southern  Classification  than  under  the 
Official ;  but  even  where  articles  are  classed  higher  under  the 
Official  Classification  than  under  the  Southern,  they  still  have 
lower  rates  under  the  Official  Classification  than  under  the 
Southern,  because  the  Southern  Classification  rates  are  so  much 
liigher  per  class  than  the  Official  Classification  rates.  For  ex- 
ample, the  class  6  rate  of  the  Southern  Classification  is  higher 
than  the  class  4  rate  of  the  Official  Classification. 


THE   CHATTANOOGA  CASE  271 

4.  By  the  lines  from  New  York  and  other  eastern  seaboard 
cities  through  Chattanooga,  Hmitsville  is  a  longer-distance 
point  than  Chattanooga  by  97  miles,  Decatur  by  122  miles, 
Tuscumbia  by  165  miles,  Sheffield  by  170  miles,  and  Florence 
by  173  miles,  but  the  rates  to  all  these  points  are  the  same  as 
the  rates  for  the  shorter  haul  to  Chattanooga  (map,  p.  154). 
The  testimony  shows  that  these  rates  as  applied  to  the  longer 
hauls  to  these  longer-distance  points  yield  the  carriers  a  remu- 
neration in  excess  of  operating  expenses  and  fixed  charges. 

The  rates  for  the  haul  from  eastern  seaboard  cities  through 
Chattanooga  and  310  miles  on  to  Memphis  are  lower  than  for 
the  shorter  haul  to  Chattanooga.  For  example,  the  class  1  rate 
from  New  York  to  Memphis  is  100  cents  as  against  a  rate  of 
114  cents  to  Chattanooga.  The  testimony  is  that  if  this  rate 
of  100  cents  were  applied  to  the  shorter  haul  to  Chattanooga 
"  it  would  not  be  unremunerative.""  The  Memphis  rail  rates 
are  made  with  a  view  of  meeting  competition  by  the  Mississippi 
river  on  which  Memphis  is  located. 

The  rates  from  eastern  seaboard  cities  by  ocean  to  Norfolk 
and  thence  by  rail  to  Evansville  are  lower  than  the  rates  to 
Chattanooga.  For  example,  the  class  1  rate  by  that  route  to 
Evansville  is  73  cents  per  hundred  pounds.  The  class  1  rate 
by  that  route  to  Chattanooga  is  81.14,  41  cents  higher  than  the 
Evansville  rate.  The  testimony  tends  to  show  that  the  73-cent 
rate  as  applied  to  the  haul  to  Evansville  is  reasonably  remunera- 
tive, and  it  is  testified  that  the  same  rate  as  applied  to  the  haul 
to  Chattanooga  "  would  yield  more  than  the  cost  of  transporta- 
tion to  Chattanooga." 

5.  The  Chattanooga  rates  from  eastern  seaboard  cities  yield 
rates  per  ton  per  mile  much  greater  than  —  in  some  instances 
more  than  double  —  the  average  receipts  per  ton  per  mile  of  the 
principal  defendants,  of  roads  throughout  southern  territory  and 
of  roads  throughout  the  United  States. 

6.  The  rates  in  question  from  New  York  and  other  eastern 
seaboard  cities  to  Chattanooga  were  established  by  the  roads  as 
members  of  the  Southern  Railway  &  Steamship  Association,^ 

1  Vide,  p.  128,  supra. 


•_>7-J  KAII.WAV    1MM)1?LKMS 

ami  AW  still  with  iinmali'iial  exceptions  maintained  as  origi- 
MuUv  lixt'il.  riu'  Siditlu'in  Railway  &  Steani.ship  Association 
ceasi'd  to  exist  iiiulcr  that  luune  in  about  1895,  but  it  was  suc- 
ceeded bv  the  Soutluiii  States  Freight  Association,  which  in 
turn  was  succeeded.  May  1,  1807,  by  the  Southeastern  Freight 
Association.  The  existing  association  names  rates  and  fixes 
classilicatious  through  joint  committees,  each  road  having  a 
representative  on  the  connnittee,  and  the  rates  are,  as  a  rule, 
concurred  in  and  maintained  as  under  the  Southern  Railway  & 
Steamshii)  Association,  although  the  succeeding  association  has 
not  the  power,  which  the  Southern  llaihvay  &  Steamship  Asso- 
ciation had,  of  enforcing  the  maintenance  of  rates  by  fines.  The 
roads  not  belonging  to  the  association  conform  to  the  association 
rates.  The  Chattanooga  rates  as  now  fixed  have  been  in  force 
more  than  18  years  and  were  established  long  before  the  South- 
ern Railway  &  Steamship  Association  was  dissolved. 

7.  In  establishing  rates  from  eastern  seaboard  cities  to 
Chattanooga,  the  Southern  Railway  &  Steamship  Association 
grouped  Chattanooga  with  the  following  cities  and  towns  and 
perhaps  others,  to  wit :  Dalton,  Rome,  Atlanta,  Americus, 
Athens,  Columbus,  Fort  Gaines  and  Grififin,  in  the  State  of 
Georgia;  Huntsville,  Decatur,  Sheffield,  Tuscumbia,  Florence, 
Gadsden,  Oxford,  Talladega,  Anniston,  Birmingham,  Opelika, 
Montgomery,  Selma  and  Eufaula,  in  the  State  of  Alabama  and 
Meridian,  in  the  State  of  Mississippi.  The  sea  and  rail  rates 
to  all  these  points  are  the  same  as  to  Chattanooga,  although 
many  of  them  are  longer-distance  points  from  the  east  than 
Chattanooga  and  the  haul  to  them  is  tln-ough  Chattanooga,  for 
exami^le,  Huntsville,  Decatur,  Florence,  Tuscumbia  and  Shef- 
field. The  sea  and  rail  rates  are  the  rates  by  ocean  to  Norfolk, 
Pinner's  Point,  Charleston  or  Savannah  and  thence  by  rail,  and 
are  the  rates  complained  of  in  this  case.  The  bulk  of  the  traffic 
to  Chattanooga  and  the  Chattanooga  group  comes  by  these  sea 
and  rail  lines  and  these  sea  and  rail  rates  are  applied  to  that 
traffic.  Of  the  cities  and  towns  named  above  as  belonging  to  the 
Chattanooga  group,  Dalton,  Rome,  Atlanta,  Americus,  Athens, 
Columbus,   Griffin,   Anniston,   Gadsden,  Oxford,   Opelika  and 


THE   CHATTANOOGA  CASE 


'Zto 


Eufaula  have  higher  all  rail  class  rates  than  Chattanooga  —  their 
all  rail  rates  on  the  six  numbered  classes  being  as  follows : 


1 

!J 

3 

4 

5 

6 

126 

108 

95 

81 

66 

54 

The  all  rail  rates  to  the  other  points  in  the  group  are  the 
same  as  to  Chattanooga. 

It  is  claimed  and  the  testimony  is  to  the  effect  that  a  reduc- 
tion in  the  rates  to  Chattanooga  would  necessitate  a  reduction 
in  the  rates  to  all  the  points  in  the  same  group  with  Chatta- 
nooga, as  without  such  reduction,  Chattanooga  would  be  given 
an  unjust  advantage  in  rates  over  those  points. 

8.  Nashville  is  situated  on  the  Cumberland  river  and  is 
reached  by  the  Louisville  &  Nashville  road,  the  Nashville, 
Chattanooga  &  St.  Louis  Railway  and  the  Tennessee  Central 
Railroad. 

Chattanooga  is  located  on  the  Tennessee  river  and  is  reached 
by  the  following  nine  originally  independent  railroads,  to  wit: 
The  Cincinnati  Southern  Railway ;  the  Southern  Railway ;  the 
Georgia  Division  of  the  Southern  Railway ;  the  Western  &  At- 
lantic Railroad ;  the  Chattanooga,  Rome  &  Southern  Railroad ; 
the  Chattanooga  Southern ;  the  Alabama  Great  Southern ;  the 
Memphis  &  Charleston  Railroad ;  and  the  Nashville,  Chatta- 
nooga &  St.  Louis  Railway. 

These  nine  roads  are  now  operated  by  about  four  distinct 
companies  or  systems. 

9.  In  the  former  case  the  only  lines  involved  were  the  direct 
lines,  all  rail  or  sea  and  rail,  to  Chattanooga  and  through  Chat- 
tanooga to  Nashville,  and  the  order  of  the  Commission  related 
to  rates  over  those  lines  alone.  The  lines  involved  under  the 
complaint  in  the  present  case  are  the  lines  from  New  York  and 
other  eastern  seaboard  cities,  either  all  rail,  or  sea  and  rail,  via 
Norfolk,  Charleston  or  Savannah,  to  Chattanooga  and  through 
Chattanooga  to  Nashville,  and  also  the  lines  via  Cincinnati  to 
Chattanooga  and  to  Nashville. 


'riu>  short  all  rail  liiu'  fioni  Now  \'()ik  ria  Cincinnati  to 
Nashville  is  made  uj)  of  the  Pennsylvania  Railroad  from  New 
York  to  Cincinnati  and  the  Louisville  &  Nashville  road  from 
Cincinnati  to  Nashville,  and  is  1058  miles  in  length. 

'I'hc  short  all  rail  line  from  New  York  to  Chattanooga  is  by 
the  Pennsylvania  Railroad  from  New  York  to  Alexandria,  the 
Sonthorn  Railway  from  Alexandria  to  Lynchburg,  the  Norfolk 
\-  Western  Railway  from  Lynchburg  to  Bristol  and  the  Southern 
Railway  from  Bristol  to  Chattanooga,  and  is  846  miles  in  length. 

The  excess  of  the  distance  by  the  above  line  via  Cincinnati 
to  Nashville  over  the  above  line  to  Chattanooga  is  212  miles. 

The  short  all  rail  line  from  New  Yoi-k  via  Chattanooga  to 
Nashville  is  by  the  line  above  given  to  Chattanooga  and  thence 
over  the  Nashville,  Chattanooga  &  St.  Louis  Railway  151  miles 
on  to  Nashville.  By  this  line  and  by  all  lines  through  Chat- 
tanooga to  Nashville,  Nashville  is  the  longer-distance  point  by 
151  miles.  ******* 

10.  The  Louisville  &  Nashville  Railroad  Company  owns  and 
operates  the  road  from  Evansville  to  Nashville  and  the  road 
from  Cincinnati  through  Louisville  to  Nashville,  and  is  part  of 
the  short  through  line  from  New  York  and  other  eastern  sea- 
board cities  via  Cincinnati  to  Nashville.  It  also  operates  jointly 
with  the  Atlantic  Coast  Line  Railroad  the  road  from  Augusta 
to  Atlanta,  Georgia,  and  it  owns  a  majority  of  the  capital  stock 
of  the  Nashville,  Chattanooga  &  St.  Louis  Railway  Company, 
which  latter  road,  having  leased  the  Western  &  Atlantic  ex- 
tending from  Atlanta  to  Chattanooga,  operates  the  line  all  the 
way  from  Atlanta  through  Chattanooga  to  Nashville. 

The  Louisville  &  Nashville  road  by  virtue  of  its  ownership 
of  a  majority  of  the  stock  of  the  Nashville,  Chattanooga  &  St. 
Louis  Railway,  can  name  the  entire  board  of  directors  and  has 
the  power  to  control  the  operations  of  the  latter  road.  If  com- 
petition of  the  Nashville,  Chattanooga  &  St.  Louis  Railway 
Company  with  the  Louisville  &  Nashville  Railroad  Company 
on  traffic  from  the  east  to  Nashville  should  for  any  reason  be- 
come objectionable  to  the  Louisville  &  Nashville  road,  it  pos- 
sesses the  power  to  control  or  put  an  end  to  that  competition. 


THE  CHATTANOOGA  CASE  275 

The  two  roads,  however,  have  separate  and  distinct  corps  of 
officers  and  employees  and  appear  to  be  in  active  competition 
for  traffic  from  eastern  seaboard  cities  to  Nashville.  The  Louis- 
ville &  Nashville  road  has  no  interest,  as  stockholder  or  other- 
wise, in  any  railroad  east  of  Augusta  or  in  any  ocean  steamship 
company  whose  vessels  ply  from  South  Atlantic  ports  to  New 
York  and  other  eastern  seaboard  cities.^ 

The  competition  of  the  Nashville,  Chattanooga  &  St.  Louis 
Railway,  as  a  member  of  the  lines  through  Chattanooga  to  Nash- 
ville, with  the  Louisville  &  Nashville  Railroad,  as  a  member 
of  the  lines  through  Cincinnati  to  Nashville,  for  traffic  from 
eastern  seaboard  cities  to  Nashville  does  not  affect  the  rates 
to  Nashville.  The  rates  of  the  lines  through  Chattanooga  and 
through  Cincinnati  are  the  same  and  have  been  the  same  as  now 
for  a  long  period  of  time.  There  is  active  competition  between 
the  two  sets  of  lines  for  business,  but  that  competition  is  at  the 
^^established  rates."  There  has  been  no  competition  affecting 
rates  since  the  rates  were  established  by  the  Southern  Railway 
&  Steamship  Association  more  than  18  years  ago.  * 

11.  By  steamboats  operating  on  the  Cumberland  river  and 
connecting  with  Ohio  and  Mississippi  river  boats,  Nashville  has 
water  communication  with  Cincinnati,  Louisville,  Evansville, 
Brookport  or  Paducah,  and  Cairo. 

The  Cumberland  river  is  navigable  from  Tv^  to  10  months 
in  the  year,  an  average  of  about  8|-  months.  On  shipments 
by  the  Ohio  and  Cumberland  rivers  from  Cincinnati  to  Nash- 
ville, the  traffic  is  transferred  from  the  Ohio  river  boat  to  the 
Cumberland  river  boat  at  Evansville  or  Paducah. 

The  distance  from  Cincinnati  to  Nashville  by  the  Ohio  and 
Cumberland  rivers  is  690  miles  and  by  all  rail  (the  Louisville 
&  Nashville  road)  295  miles.  From  Evansville  to  Nashville  by 
river  the  distance  is  340  miles  and  by  rail  154  miles.  The  time 
by  boat  from  Cincinnati  to  Nashville  is  6  days,  and  for  the 
round  trip  12  days.  The  time  from  Evansville  to  Nashville  is 
2^  days  and  for  the  round  trip  about  6  days. 

1  The  Atlantic  Coast  Line  has  since  then  absorbed  the  entire  Louisville  and 
Nashville  system.  —  Ed. 


•_>7(;  KA1I.\\A\     I'Kor.LKMS 

Tliore  is  no  inati'iial  amount  of  trafTlic  from  New  York  and 
(>th(>r  eastern  seaboard  cities  which  moves  to  Nashville  by  boat 
ou  the  Cumberland  river.  There  are  no  through  rates  pub- 
lished or  agreed  upon  from  eastern  seaboard  cities  by  rail  to 
Cincinnati  or  Evansville  and  thence  by  river  to  Nashville,  and 
there  never  have  been  such  through  rates.  The  boat  lines  from 
Cincinnati  and  from  Evansville  to  Nashville  have  no  published 
rates.  The  largest  business  done  by  boats  on  the  Cumberland 
river  from  Ohio  river  points  to  Nashville  is  the  grain  business. 
The  bulk  of  the  traffic  besides  grain  transported  on  the  Cum- 
berland river  from  Evansville  to  Nashville  consists  of  buckets, 
brooms,  sieves,  wooden  ware,  molasses  and  glucose. 

The  rail  lines  have  great  advantages  over  the  river  lines  and 
merchants  much  prefer  the  former.  It  is  only  when  the  rail 
rates  are  excessive  or  unreasonable  that  they  resort  to  the  river. 
And  the  goods  and  commodities  shipped  by  Nashville  mer- 
chants by  river  to  Nashville  are  for  the  most  part,  if  not  entirely, 
traffic  as  to  which  time  is  not  an  element  of  importance.  The 
risk  by  river  is  greater  than  by  rail  and  river  traffic  from  Cin- 
cinnati to  Nashville  is  insured. 

Since  the  advent  of  railways,  the  business  of  river  lines  on 
long  through  hauls  has  almost  entirely  ceased  and,  although  the 
rail  rates  from  Cincinnati,  Louisville  and  Evansville  to  Nash- 
ville are  much  higher  than  the  river  rates,  the  railroads  get  all 
but  an  inconsiderable  portion  of  the  business. 

Nashville  merchants  testify  that  they  have  the  Cumberland 
river  to  rely  upon  for  protection  from  excessive  rates  by  rail 
and  that  a  material  increase  in  the  present  rail  rates  would  force 
them  to  resort  to  a  large  extent  to  the  river  line. 

Before  the  rail  lines  were  completed  to  Nashville,  traffic  came 
from  eastern  seaboard  cities  by  the  Pennsylvania  Railroad  to 
Pittsburg  and  thence  by  the  Ohio  and  Cumberland  rivers  to 
>s^shville,  but  there  were  no  through  rates  and  no  through 
billing. 

The  Nashville,  Chattanooga  &  St.  Louis  road,  connecting 
Chattanooga  with  Nashville,  was  completed  in  1854,  five  years 
before  the  completion  of  the   Louisville   &   Nashville   road  to 


THE  CHATTANOOGA  CASE  277 

Nashville.  The  construction  of  the  former  road  commenced  at 
Nashville  and  extended  east  to  Chattanooga.  After  it  had 
been  completed  as  far  east  as  Stevenson,  a  point  38  miles  from 
Chattanooga,  rates  were  made  from  New  York  for  the  trans- 
portation of  traffic  via  Charleston  to  Chattanooga,  thence  by  the 
Tennessee  river  to  Caperton's  Landing,  thence  4  miles  by  wagon 
to  Stevenson  and  thence  by  rail  to  Nashville.  The  first  through 
rates  from  the  east  to  Nashville  were  made  over  this  line  through 
Chattanooga. 

The  testimony  is  that  when  the  Nashville,  Chattanooga  & 
St.  Louis  road  was  completed  from  Nashville  to  Chattanooga 
the  competition  it  met  on  traffic  from  the  east  to  Nashville  was 
that  of  the  Cumberland  river,  and  that  when  the  Louisville  & 
Nashville  road  was  subsequently  completed  from  Cincinnati  to 
Nashville  the  Cumberland  river  competition  was  "transferred" 
to  that  road,  and  the  Nashville,  Chattanooga  &  St.  Louis  road 
had  to  meet  the  rates  of  that  road  thus  influenced  by  Cumber- 
land river  competition. 

The  Cumberland  river  is  stated  by  defendants'  witnesses  to 
be  and  to  have  been  the  controlling  competitive  force,  or  in  the 
language  of  a  Avitness,  the  "  common  enemy,"  which  the  rail 
lines  from  the  east  to  Nashville  have  to  meet ;  and  that  because 
of  this  competition  by  the  Cumberland  river  the  Nashville 
rates  even  before  the  completion  of  the  roads  to  Nashville  were 
lower  than  the  Chattanooga  rates.  It  is  to  be  noted  that  at 
that  time  and  until  a  comparatively  recent  period,  the  Ten- 
nessee river  was  not,  as  it  now  is  by  the  completion  of  the 
canal  through  the  Mussel  Shoals  referred  to  in  the  next  sub- 
division of  this  report  and  opinion,  opened  up  for  continuous 
transportation  from  Chattanooga  to  the  Ohio  river. 

Nevertheless,  upon  all  the  evidence  in  this  case  and  our  gen- 
eral knowledge  of  the  situation,  we  are  convinced  and  find 
that  the  rates  accepted  for  the  transportation  of  eastern  mer- 
chandise to  Nashville  are  not  forced  upon  the  carriers  by  water 
competition  for  that  traffic.  The  competition  which  the  lines  via 
Chattanooga  meet  is  distinctly  the  competition  of  the  trunk  lines 
and  the  Louisville  &  Nashville  road  whose  northern  termini 


27S  i;.\ii.\\A\    i'i;(»r.i,KMs 

are  at  j)i)ints  on  llu'  Ohio  river;  it  results  from  the  fact  that 
tlio  'i'runk  I.iiu'  basis  of  rates  was  long  ago  extended  to  Nash- 
ville. In  this  c^onnection  we  repeat  the  linding  in  the  former 
case,  as  follows  : 

The  river  rates  are  lunv  considerably  lower  than  the  rail  rates,  and 
more  or  less  of  the  local  traflic  goes  by  water;  but  the  through  business 
from  Allaiitic  cities,  saving  the  time,  distance  and  cost  of  breaking  bulk 
at  Cincinnati,  would  continue  to  go  by  rail,  in  our  judgment,  even  if  the 
disparity  between  land  and  water  rates  were  materially  greater  than  it  is 
now.  There  might,  of  course,  be  such  an  advance  in  rail  rates  that  ship- 
ments from  the  east  would  take  the  water  route  from  Cincinnati.  What 
amount  of  difference  would  produce  that  result  it  is  impossible  to  deter- 
mine from  the  testimony;  but  we  find  that  such  difference  might  be  sub- 
stantially greater  than  it  is  at  present  without  important  effect  upon  the 
railroad  tonnage  from  the  east,  and  that  the  through  rate  to  Nashville  is 
in  no  sense  controlled  by  water  competiti(jn  at  that  point,  either  actually 
encountered  or  seriously  ajiprehended. 

12.  By  means  of  boats  on  the  Tennessee  river,  Chattanooga 
now  has  continuous  water  transportation  from  Chattanooga  to 
Paducah  at  the  confluence  of  the  Tennessee  and  Ohio  rivers  and 
to  Ohio  and  Mississii)pi  river  points,  St.  Louis,  Cairo,  Evans- 
ville,  Louisville  and  Cincinnati.  The  Tennessee  river  is  navi- 
gable from  Chattanooga  to  the  Oliio  river  from  8  to  10  months 
during  the  year,  an  average  of  9  months.  The  distance  by  the 
Tennessee  liver  from  Paducah  to  Chattanooga  is  464  miles 
and  it  takes  from  3  to  4  days  for  a  boat  to  go  from  Paducah  to 
Ciiattanooga. 

When  the  complaint  in  the  former  case  before  the  Commis- 
sion was  filed,  continuous  transportation  by  the  Tennessee  river 
from  Chattanooga  to  Paducah  and  the  Ohio  river  was  inter- 
rupted by  the  Mussel  Shoals.  A  canal  was  then  being  built  by 
the  government  through  the  shoals  and  it  was  opened  in  No- 
vember, 1890.  Since  that  time  it  has  been  maintained  "in  a 
state  of  efficiency  and  readiness  for  use  throughout  the  entire 
year,  and  there  has  been  a  steady  annual  increase  in  the  num- 
lx;r  of  vessels  passing  through  the  canal."  (Annual  Report 
upon  Improvements  of  Tennessee  river  by  the  United  States 
Chief  of  Engineers  for  the  year  1901,  p.  466.) 


THE  CHATTANOOGA  CASE  279 

The  boats  on  the  Tennessee  river  running  from  Chattanooga 
to  Florence  and  Paducah  have  increased  from  16  in  1890  to 
54  in  1899,  and  the  tonnage  of  traffic  has  increased  from  78,820 
tons  in  1892  to  253,340  tons  in  1899. 

The  bulk  of  the  traffic  from  New  York  and  other  eastern  sea- 
board cities  to  Chattanooga  is  shipped  by  ocean  to  Norfolk 
and  thence  by  rail  to  Chattanooga,  but  shipment  from  those 
cities  to  Cincinnati  or  Paducah  and  thence  by  river  to  Chat- 
tanooga is  practicable.  Such  shipments  are  made  but  not  to 
any  material  extent  in  consequence  of  the  great  advantage  of 
the  direct  all  rail  or  rail  and  ocean  lines  via  Norfolk  to  Chat- 
tanooga. 

A  large  proportion  of  the  business  of  boats  on  the  Tennes- 
see river  originates  in  Chicago,  St.  Louis  and  Louisville  and 
there  is  a  considerable  tonnage  of  traffic  from  Cincinnati  and 
Evansville.  Traffic  from  Cincinnati,  Louisville  and  Evansville 
is  transferred  at  Paducah. 

In  order  to  protect  themselves  from  excessive  rates  by  rail 
and  to  meet  the  discrimination  in  rates  against  Chattanooga  and 
in  favor  of  Nashville,  the  Chattanooga  merchants  have  estab- 
lished a  boat  line  on  the  Tennessee  river  operating  between 
Chattanooga  and  Paducah  and  points  on  the  Ohio  river.  The 
steamer  Avalon  of  this  line  has  a  tonnage  of  305  tons  and  from 
February  6  to  July  4,  1901,  it  made  15  round  trips  through 
the  Mussel  Shoals  to  Paducah  carrying  674  passengers  and 
3,557  tons  of  freight.    This  steamer  also  goes  to  Cairo. 

The  principal  traffic  transported  on  the  Tennessee  river  con- 
sists of  general  mei'chandise,  lumber,  hay  and  grain,  cotton  and 
cotton  seed,  flour,  peanuts,  produce,  fertilizers,  live  stock,  logs 
and  wood,  railroad  ties,  staves,  stone,  sand  and  gravel.         * 

13.  Chattanooga  is  entitled  to  the  benefit  of  low  Trunk  Line 
rates  to  Cincinnati  and  has  it  to  practically  the  same  extent  as 
Nashville.  The  difference  in  rates  between  the  two  cities  begins 
at  Cincinnati  and  results  from  the  higher  rates  charged  by  the 
Cincinnati,  New  Orleans  &  Texas  Pacific  road  from  Cincinnati 
to  Chattanooga  than  are  charged  by  the  Louisville  &  Nashville 
road  from  Cincinnati  to  Nashville. 


•_'S(i  ir\iT,w.\Y  ri^(^r.T. K:\rs 

It"  tlu-  proportions  of  the  Cincinnati,  New  Orleans  <fc  Texas 
Paiilic  road  from  Ciiu-innati  to  Chattanooga  were  reduced  so 
lis  to  make  them  not  higher  than  the  proportions  of  the  Louis- 
ville &  Nashville  road  from  Cincinnati  to  Nashville,  the  Chat- 
tanooga rates  would  be  about  as  high  as,  or  not  materially  dif- 
ferent frt)m,  the  Nashville  rates  from  the  eastern  seaboard  cities. 
The  distance  by  the  Cincinnati,  New  Orleans  &  Texas  Pacific 
road  from  Cincinnati  to  Chattanooga  exceeds  the  distance  by  the 
Louisville  «!v:  Nashville  road  from  Cincinnati  to  Nashville  by 
about  37  miles.  It  is  testified  that  this  "slight  difference"  in 
distance  is  immaterial  and  had  nothing  to  do  with  fixing  the 
rates. 

Some  traffic  from  the  east  comes  to  Chattanooga  via  Cincin- 
nati, but  the  most  of  it  comes,  as  before  stated,  via  the  Virginia 
ports,  Norfolk  and  Newport  News,  and  the  direct  short  rail  lines 
to  Chattanooga. 

There  is  no  evidence  that  any  traffic  from  the  east  comes  to 
Chattanooga  via  Cincinnati  and  Nashville  or  via  Evansville  and 
Nashville. 

14.  Trunk  Line  territory  proper  lies  east  of  the  Mississippi 
and  north  of  the  Ohio  and  Potomac  rivers  and  Southern  terri- 
tory is  that  east  of  the  Mississippi  and  south  of  those  rivers. 
Nashville,  as  well  as  Chattanooga,  is  in  Southern  territory,  but 
Nashville  is  not  as  far  removed  from  Trunk  Line  territory  as 
Chattanooga.  Nashville  by  the  Louisville  &  Nashville  road  is 
155  miles  from  Trunk  Line  territory  at  Evansville,  185  miles 
at  Louisville  and  301  miles  at  Cincinnati.  Chattanooga  by  the 
Cincinnati,  New  Orleans  &  Texas  Pacific  Railway  is  338  miles 
from  Trunk  Line  territory  at  Cincinnati  and  by  the  Louisville 
&  Nashville  road  via  Nashville  is  306  miles  at  Evansville. 

Because  of  the  greater  density  of  population  and  greater 
volume  of  traffic  in  Trunk  Line  territory  than  in  Southern  ter- 
ritory, the  rates  charged  by  the  Trunk  Line  roads  can  be  and 
are  made  lower  than  in  Southern  territory. 

The  transportation  by  the  Louisville  &  Nashville  road  of  east- 
em  traffic  from  Cincinnati  to  Nashville  is  through  Southern 
territory,  but  the  rates  charged  by  that  road  for  the  portion  of 


THE   CHATTANOOGA  CASE  281 

the  through  haul  from  Cincinnati  to  Nashville  are  practically 
extensions  of  Trunk  Line  rates,  the  rate  per  ton  per  mile  under 
those  rates  being  about  the  same  as  the  rate  per  ton  per  mile 
under  the  Trunk  Line  rates  from  the  east  to  Cincinnati.  .  .  . 
The  through  rates  from  New  York  and  other  eastern  cities  via 
Cincinnati  to  Nashville  are,  in  the  language  of  the  witnesses, 
ii prorated  all  the  way  to  Nashville,"  while  the  through  rates 
via  Cincinnati  to  Chattanooga  are  not  prorated. 

15.  Nashville  competes  with  Cincinnati,  Louisville,  Evans- 
ville,  Paducah,  Cairo  and  Memphis,  in  territory  between  Nash- 
ville and  those  cities.  Cincinnati,  Louisville  and  Evansville 
are  shorter-distance  points  than  Nashville  from  eastern  seaboard 
cities  by  the  direct  rail  or  rail  and  water  lines  and  their  rates 
are  lower  than  the  Nashville  rates. 

Any  material  advance  in  the  Nashville  rates  would  injure 
Nashville  in  that  competition  and  would  also  increase  the  river 
business  on  the  Cumberland  river. 

16.  Nashville  also  competes  with  Chattanooga  in  territory 
between  Nashville  and  Chattanooga  on  the  line  of  the  Nashville, 
Chattanooga  &  St.  Louis  Railway  and  in  territory  south  and 
west  of  Chattanooga  in  Tennessee,  Georgia  and  Alabama  on 
the  Memphis  &  Charleston,  Alabama  Great  Southern,  Western 
&  Atlantic  and  other  roads. 

On  the  line  of  the  Nashville,  Chattanooga  &  St.  Louis  Rail- 
way between  Nashville  and  Chattanooga,  Nashville  has  the  ad- 
vantage in  rates  over  Chattanooga.  The  combinations  of  the 
through  rates  on  class  1  goods  from  New  York,  for  example,  to 
Chattanooga  with  the  local  rates  from  Chattanooga  to  stations 
on  the  Nashville,  Chattanooga  &  St.  Louis  Railway  between  Chat- 
tanooga and  Nashville,  exceed  to  a  material  extent  the  com- 
binations of  the  through  rates  to  Nashville  with  the  local  rates 
from  Nashville  to  those  stations,  and  Chattanooga  merchants 
testify  that  they  cannot  sell  goods  shipped  from  the  east  on 
terms  of  equality  in  competition  with  Nashville  merchants  in 
territory  west  of  a  point  30  miles  from  Chattanooga  and  121 
miles  from  Nashville  on  the  Nashville,  Chattanooga  &  St. 
Louis  Railway  and  that  they  are  forced  to  sell  at  a  much  less 


•jS'2  l:AIl-\\A^    n.'or.LEMS 

prolii  ill  lliat  tonilory,  if  tlioy  sell  at  all,  than  Nashville  mer- 
oliants  louli/.t'. 

The  NashvilU'  nuMchants  also  have  a  material  advantage  in 
rates  owv  ("liallanooi^a  inerchaiits  in  territory  west  of  Chat- 
tanooga on  the  Meni|ihis  *fc  Charleston  (now  Sonthern)  road 
and  at  a  nnniher  of  points  on  the  roads  south  of  Chattanooga 
in  Georgia  and  Alahania  nuuh  nearer  to  Chattanooga  than  to 
Naslivilie. 

The  testimony  of  a  hirge  number  of  Chattanooga  merchants 
was  taken,  and  it  shows  that  the  growth  of  Chattanooga  and 
her  mercantile  business,  particularly  "jobbing  business,"  have 
been  greatly  retarded  by  the  materially  higher  rates  from  the 
east  to  Chattanooga  than  to  Nashville. 

At  the  time  when  the  lower  rates  from  the  east  to  Nashville 
than  to  Chattanooga  were  established,  Chattanooga  was  a  small 
town  with  only  one  partially  wholesale  house,  while  Nashville 
had  \'2  or  13  wholesale  houses.  Nashville  was  then  recognized 
as  the  distributing  point  for  the  section  of  country  up  to,  if 
not  including,  Chattanooga.  The  situation  in  this  respect  has 
chansfed.  It  is  conceded  that  Chattanoof;^a  is  now  entitled  to 
recognition  and  treatment  as  a  distributing  center,  that  her 
"  shipping  facilities  are  superior  to  those  of  either  Nashville  or 
Knoxville  "  and  that  "•  taking  into  account  the  claims  of  those 
cities,  the  legitimate  trade  of  Chattanooga  covers  a  strip  of  ter- 
ritory extending  northeast  and  southwest  a  distance  of  about  200 
miles  in  length  ])y  about  125  miles  in  width." 

At  the  same  time,  we  are  constrained  to  find,  as  a  deduction 
from  the  foregoing  and  other  facts  appearing  in  the  record,  that 
tlie  circumstances  and  conditions  under  which  this  eastern 
traflic  is  carried  to  Nashville  are  not  substantially  similar  to  the 
circumstances  and  conditions  under  which  the  same  traffic  is 
carried  to  Chattanooga.  The  lower  rates  to  Nashville  via  the 
Ohio  river  gateways  are  not  made  or  controlled  by  the  lines 
operating  via  Chattanooga,  and  the  latter  are  under  compulsion 
to  meet  those  rates  or  forego  participation  in  the  traffic  from 
the  eastern  seaboard  to  Nashville. 


THE  CHATTANOOGA  CASE  283 

Conclusions 

The  facts  appearing  in  the  present  case  are  not  materially  dif- 
ferent from  those  disclosed  in  the  former  proceeding.^  While 
minor  changes  have  taken  place  since  the  prior  investigation, 
the  salient  features  of  the  situation  remain  practically  unaltered. 
It  is  clear  now  as  it  was  then  that  the  lower  rates  from  eastern 
seaboard  cities  to  Nashville  than  to  Chattanooga  give  Nashville 
merchants,  on  traffic  from  these  cities,  an  advantage  over  Chat- 
tanooga merchants  in  territory  which  may  be  said  to  be  nat- 
urally tributary  to  Chattanooga ;  it  is  equally  clear  that  this 
disparity  in  charges  has  its  origin  and  alleged  justification  in 
differences  of  circumstances  and  conditions  which  have  existed 
in  substantially  the  same  form  for  many  years.  In  its  prac- 
tical aspects  the  problem  has  not  been  simplified  by  lapse  of 
time,  while  the  law  from  which  the  Commission  derives  its 
authority  has  meanwhile  received  repeated  and  binding  con- 
struction. The  theory  upon  which  our  former  ruling  was  based 
has  been  declared  unsound,  and  it  is  obviously  our  duty  to 
test  the  facts  presented  in  this  case  by  .the  law  as  it  has  been 
interpreted  for  our  guidance.  If  these  facts  do  not  show  a 
violation  of  the  regulating  statute,  as  that  statute  has  been  con- 
strued, we  should  so  decide,  whatever  appears  to  be  the  injustice 
suffered  by  Chattanooga,  since  the  making  of  an  order  which 
would  not  be  enforced  by  the  courts  would  be  useless  and 
unwarranted. 

In  the  light  of  various  decisions  of  the  Supreme  Court,  and 
as  stated  in  the  foregoing  findings,  we  cannot  seriously  doubt 
that  the  traffic  in  question  is  carried  to  Nashville  and  Chatta- 
nooga, respectively,  under  substantially  different  circumstances 
and  conditions.  This  being  so,  the  action  of  the  carriers  in 
maintaining  a  higher  rate  for  the  shorter  haul  to  Chattanooga 
cannot  be  regarded  as  unlawful  under  the  fourth  section  of  the 
act,  or  otherwise  condemned  merely  because  a  lower  rate  is 
granted  to  Nashville.  This  question  is  now  so  well  settled  as 
not  to  be  open  to  discussion. 

1  Cf.  footnote,  p.  260,  supra. 


•_>S1  KA1L\VA\     I'Kor.I-EMS 

W'l'  \\,\\v  III)  authority,  evi'ii  if  \v(>  had  \\\o  disposition,  to  re- 
tiuiro  an  advaiK'u  of  the  iS'ashville  rates.  Those  rates  are  the 
proiluot  of  inlhu'iices  which  have  long  been  in  potent  operation. 
Thev  arc  rales  to  which  many  and  important  commercial  inter- 
ests are  adjnsted  and  on  which  those  interests  are  largely  de- 
pendent. The  testimony  shows  that  Nashville  had  lower  rates 
fn)m  the  east  than  Chattanooga  before  the  railroads  were  con- 
structed between  Cincinnati  and  Nashville  and  between  Chat- 
tanooga and  Nashville,  and  these  lower  rates  to  Nashville  have 
ever  since  been  in  force.  Their  origin  and  continuance  are  at- 
tributed to  the  fact  that  Nasliville  is  mucb  nearer  to  Trunk  Line 
territory  than  is  Chattanooga,  and  to  the  fact  of  water  competi- 
tion by  the  Ohio  and  Cumberland  rivers.  Before  the  rail  lines 
were  extended  to  Nashville,  trafitic  from  eastern  seaboard  cities 
came  by  the  Pennsylvania  Railroad  to  Pittsburg  and  thence  by 
the  Ohio  and  Cumberland  rivers  to  Nashville.  When  the  Nash- 
ville, Chattanooga  &  St.  Louis  road  was  opened  between  Chat- 
tanooga and  Nashville,  which  was  prior  to  the  completion  of  the 
Louisville  &;  Nashville  road  from  Cincinnati  and  Evansville  to 
Nashville,  the  competition  it  met  on  traffic  from  the  east  to  Nash- 
ville was  that  via  the  Cumberland  and  Ohio  rivers ;  and  when 
the  Louisville  &  Nashville  road  was  subsequently  constructed 
from  Cincinnati  to  Nashville,  the  evidence  shows  that  the  compe- 
tition of  the  Cumberland  and  Ohio  rivers  was  "  transferred  "  to 
that  road,  and  that  the  Nashville,  Chattanooga  &  St.  Louis  road 
had  then  to  meet  the  rates  of  the  Louisville  &  Nashville  road 
thus  influenced  by  Cumberland  and  Ohio  river  competition. 

It  is  virtually  undisputed  that  Nashville  rates  from  the  east 
are  the  result  of  this  competition,  coupled  with  the  interest  of 
the  Louisville  &  Nashville  road  to  maintain  the  commercial 
importance  of  Nashville.  The  competition  at  Chattanooga, 
wliether  of  carriers  or  commercial  forces,  has  not  been  equally 
effective,  as  is  evidenced  by  the  fact  that  it  has  not  reduced 
Chattanooga  rates  to  the  level  of  Nashville  rates.  Li  deciding 
the  former  case  the  Supreme  Court  said  (Uast  Tennessee,  V.  ^ 
G.  R.  Co.  V.  Interstate  Commerce  Commission,  181  U.  S.  19, 
45  L.  ed.  726,  21  Sup.  Ct.  Rep.  516)  : 


THE  CHATTANOOGA  CASE  285 

Competition  whicli  is  real  and  substantial  and  exercises  a  potential 
influence  on  rates  to  a  j^articular  point,  brings  into  play  the  dissimilarity 
of  circumstances  and  conditions  prescribed  by  the  statute,  and  justifies  the 
lesser  charge  to  the  more  distant  and  competitive  point  than  to  the  nearer 
and  noncompetitive  point,  and  this  right  is  not  destroyed  hy  the  mere  fact 
that  incidentally  the  lesser  charge  to  the  competitive  point  may  seemingly  give  a 
preference  to  that  point  and  the  greater  rate  to  the  noncompetitive  point  may 
appare7itly  engender  a  discrimination  against  it. 

The  principle  or  rule  here  laid  down  would  apply,  and  was 
evidently  intended  to  apply,  to  a  case  where  both  points  are 
competitive,  but  where  competition  has  resulted  in  lower  rates 
to  the  longer-  than  to  the  shorter-distance  point. 

It  is  further  shown  that  Nashville  competes  with  Cincinnati, 
Louisville,  Evansville,  Cairo  and  other  Ohio  river  points  in  ter- 
ritory north  and  west  of  Nashville ;  that  rates  from  the  east  to 
those  Ohio  river  points  are  lower  than  to  Nashville ;  that  the 
present  Nashville  rates  are  necessary  to  enable  Nashville  to 
engage  in  this  competition  and  w^ere  fixed,  partly  at  least,  with 
reference  to  that  fact ;  that  even  under  these  rates  Nashville  is 
at  a  disadvantage  in  the  greater  part  of  that  territory;  and  that, 
therefore,  an  increase  of  Nashville  rates  would  place  Nashville 
at  quite  as  great  a  disadvantage  in  comparison  with  Ohio  river 
points  as  Chattanooga  is  now  under  in  comparison  with  Nash- 
ville. In  a  word,  we  regard  it  impracticable  to  relieve  Chat- 
tanooga by  advancing  the  Nashville  rates. 

The  whole  case,  therefore,  comes  to  the  question  of  the  reason- 
ableness of  the  Chattanooga  rates.  While  there  is  more  or  less 
evidence  of  a  persuasive  character,  standing  by  itself,  that  these 
rates  are  unreasonably  high,  such  as  the  fact  that  they  are  greater 
per  ton  mile  than  the  average  of  roads  in  Southern  territory  and 
thioughout  the  United  States,  and  are  the  same  as  rates  for 
longer  hauls  through  Chattanooga  to  Sheffield,  Tuscumbia,  Flor- 
ence and  a  few  other  points  in  the  same  territory,  with  other 
facts  of  similar  import,  the  force  of  this  evidence  is  materially 
modified,  if  not  overcome,  by  the  kindred  fact  that  Chattanooga 
rates  are  no  higher  than  rates  to  Atlanta,  Rome,  and  a  large 
number  of  other  places  with  which  Chattanooga  is  grouped. 


•JSO  1;.\1I.\\A^■    I'KOIU-EMS 

It  is  frt'(jiu'ntlv  usserted,  ;uul  willi  appan'iit,  reason,  that  At- 
lanta is  tlu'  nj«)st  striintj^ly  c'()ni{)etilive  point  in  the  south,  and  it 
is  situated  somewhat  nearer  the  eastern  seaboard  than  C'hatta- 
nooi^a.  Tlie  rates  to  the  Atlanta  grouj)  are  the  basis  upon  which 
numerous  rates  are  adjusted  throughout  an  extensive  area,  and 
these  rates  are  applied  to  a  hirge  volume  of  traffic.  The  At- 
lanta rates  are  the  outgrowth  of  competition  between  a  number 
of  independent  lines,  and  there  is  no  proof  that  these  rates  are 
unreasonable,  except  such  proof  as  appears  in  this  case  respect- 
ing the  reasonableness  of  the  same  rates  to  Chattanooga.  The 
fact  that  rates  for  the  shorter  haul  to  Chattanooga  are  higher 
than  for  the  longer  haul  through  Chattanooga  to  Nashville,  or 
for  the  longer  haul  to  Evansville,  does  not  warrant  the  conclu- 
sion, under  the  decisions  referred  to,  that  the  Chattanooga  rates 
are  unreasonable,  because  the  rates  to  Nashville  and  Evansville 
are  controlled  by  competitive  forces  which  do  not  operate  with 
like  effect  on  rates  to  Chattanooga. 

As  above  indicated,  Chattanooga  is  "  grouped,"  or  classed  for 
rate-making  purposes,  with  Atlanta  and  some  23  other  points 
in  Georgia,  Alabama  and  Mississip[)i,  all  of  which  take  the 
same  rates  from  the  east.  It  is  claimed  by  the  defendent  car- 
riers, and  there  is  no  evidence  to  the  contrary,  that  a  reduction 
of  the  rates  to  Chattanooga  would  require  a  reduction  in  the 
rates  to  Atlanta  and  all  other  points  taking  the  same  rates  ;  that 
this  in  turn  would  require  a  corresponding  reduction  in  rates 
to  other  localities  outside  the  Atlanta  and  Chattanooga  group  ; 
and  that,  in  short,  the  ultimate  and  necessary  result  would  be 
a  reduction  in  rates  throughout  the  entire  Southern  territory, 
with  a  consequent  loss  of  revenue  which  the  roads  serving  that 
territory  are  unable  to  bear. 

Whatever  may  be  said  of  this  contention,  and  we  doubt 
whether  it  is  well  founded  to  the  extent  claimed,  it  seems 
clear  that  a  reduction  of  the  Chattanooga  rates,  without  a  like 
reduction  in  rates  to  Atlanta  and  the  other  points  with  which 
Chattanooga  is  grouped,  would  give  Chattanooga  an  advantage 
to  which  that  town  is  not  shown  to  be  entitled.  In  that  case  At- 
lanta and  other  distributing  points  would  be  in  much  the  same 


THE   CHATTAXUUGA  CASE  287 

position  with  reference  to  Chattanooga  that  Chattanooga  is  now 
with  reference  to  Nashville.  Moreover,  so  far  as  we  can  see, 
the  facts  in  this  case  which  are  claimed  to  establish  the  un- 
reasonableness of  Chattanooga  rates  would  apply  with  equal 
force  to  rates  to  Atlanta  and  other  destinations.  Nor  is  it  other- 
wise suggested  by  complainant.  Apparently,  therefore,  a  ruling 
that  Chattanooga  rates  are  unreasonable,  and  so  in  violation  of 
the  first  section  of  the  act,  would  inferentially  and  in  effect  con- 
demn as  unlawful  the  rates  to  Atlanta  and  many  other  points  of 
importance  which  have  long  had  the  same  rates  as  Chattanooga. 

Upon  the  facts  now  appearing  we  are  not  satisfied  that  such 
a  ruling  is  warranted.  There  is  much  to  induce  belief  that  the 
Chattanooga  rates  are  excessive,  though  to  what  extent  it  would 
be  difficult  to  determine.  It  is  quite  apparent  that  these  rates, 
to  a  considerable  degree  at  least,  operate  to  restrict  the  com- 
mercial activities  of  Chattanooga,  particularly  in  its  competition 
with  Nashville ;  and  thei'e  is  little  reason  to  doubt  that  the 
charges  now  imposed  on  this  eastern  traffic  to  Chattanooga  should 
be  materially  reduced,  if  that  can  be  done  without  injustice  to 
the  carriers  and  localities  affected  by  a  readjustment.  While 
this  is  undoubtedly  true,  it  does  not  follow  that  these  rates  are 
shown  to  be  unreasonable  witliin  the  meaning  of  the  first  sec- 
tion of  the  act ;  and  this,  it  should  be  remembered,  is  the  only 
question  we  have  authority  to  decide. 

It  appears  clear  to  us  tliat  the  Chattanooga  rates  cannot  be  in- 
dependently considered,  even  as  respects  their  reasonableness. 
They  are  embraced  in  and  connected  with  a  system  of  equalized 
rates  which  have  been  applied  for  many  yeai'S  throughout  an 
extensive  region,  and  are  closely  related  to  rates  in  a  still  larger 
area  comprising  the  greater  part  of  what  is  known  as  Southern 
territory.  To  deal  intelligently  with  a  rate  question  of  such 
magnitude  and  complexity  seems  to  require  a  wider  survey  than 
this  record  permits.  Impressed  with  this  view,  we  feel  justified 
in  deferring  a  final  judgment  until  the  situation  can  be  investi- 
gated in  its  larger  relations  and  a  more  confident  basis  found  than 
now  appears  for  declaring  that  this  comprehensive  system  of 
rates  is  unlawfully  maintained.    We  do  not  find  or  decide  that 


288  1^\II.\VA^    I'K'oi'.lk.ms 

these  r.Hfs  arc  n-asoiialilc :  we  only  say  tliat  they  are  notshown 
((»  1)0  (ilhiMwisi'.  {'[nm  the  facts  now  presented,  and  the  law  as 
it  has  heen  inti'ipreted,  we  are  constrained  to  hold  that  no  vio- 
laiiiin  ttf  tlu'  art  has  been  established. 

It  follows  that  tiie  complaint  will  be  dismissed  without 
jirejudiee  to  any  future  investigation. 

( 'i.i:mi:ni"s,  Coiiunissioner,  dissenting: 

1  do  not  asfree  with  the  conclusion  of  the  Commission  dis- 
missing  the  complaint  in  this  case  because  I  l)elieve,  First,  that 
the  rates  to  Chattanooga  are  shown  to  be  unreasonable  ;  and, 
Second,  because  I  believe  the  adjustment  and  relation  of  rates 
to  Chattanooga  and  Nashville,  respectively,  are  shown  to  be 
nndnly  pi-eferential  to  Nashville  and  prejudicial  to  Chattanooga. 
Tlie  general  tenor  of  the  report  seems  to  this  effect  although 
relief  to  Chattanooga  is  denied,  for  the  reasons  therein  stated. 

It  is  said  in  the  conclusions  of  the  Commission  that  "  there  is 
nuich  to  induce  belief  that  the  Chattanooga  rates  are  excessive, 
though  to  what  extent  it  would  l)e  difficult  to  determine.  It  is 
quite  apparent  that  these  rates,  to  a  considerable  degree  at  least, 
operate  to  restrict  the  commercial  activities  of  Chattanooga,  par- 
ticularly in  its  competition  with  Nashville ;  and  there  is  little 
reason  to  doubt  that  the  charges  now  imposed  on  this  eastern 
traffic  to  Chattanooga  should  be  materially  reduced,  if  that  can 
be  done  without  injustice  to  the  carriers  and  localities  affected 
by  a  readjustment." 

The  original  complaint  of  Chattanooga  was  presented  to  the 
Commission  in  April,  1890.  In  December,  1892,  the  Commis- 
sion, after  hearing  the  case,  partially  disposed  of  the  same  ac- 
cording to  its  interpretation  at  that  time  of  the  long  and  short 
haul  clause,  requiring  the  carriers  to  cease  and  desist  from 
chaiging  more  to  Chattanooga  than  to  Nashville,  unless  upon 
api)lication,  as  provided  by  law,  and  upon  hearing  by  the  Com- 
mi.ssion,  it  should  be  shown  that  a  greater  charge  for  the  shorter 
distance  was  justified.  In  the  report  of  the  Commission  at 
that  time  it  was  said  :  "  We  entertain  little  doubt,  therefore,  that 
equity  between  shipper  and  carrier  requires  some  reduction  in 


THE  CHATTAXOOGA  CASE  289 

the  rates  now  enforced  on  Chattanooga  traffic  from  Atlantic 
points,  and  are  convinced  of  the  necessity  for  such  a  reduction 
to  secure  relative  justice  between  that  town  and  Nashville.  We 
refrain  from  further  statement  of  the  reasons  which  have  induced 
this  conclusion,  as  the  amount  to  which  the  Chattanooga  rate 
should  be  reduced  will  not  now  be  decided." 

Suit  was  begun  by  the  Commission  to  enforce  the  order  made 
at  that  time,  which,  having  passed  through  the  various  stages 
of  the  several  courts,  was  finally  determined  by  the  Supreme 
Court  of  the  United  States  in  1901  adversely  to  the  ruling  of 
the  Commission,  which  was  as  stated  under  the  so-called  long 
and  short  haul  provision  of  the  statute,  subject  to  the  right  of 
the  Commission  to  further  investigate  the  matter  and  determine 
the  questions  involved  according  to  law. 

The  present  complaint  is  substantially  a  continuation  of  the 
former  one,  but  was  made  and  has  been  heard  in  the  light  of  the 
interpretation  of  the  law  by  the  Supreme  Court  in  respect  to 
the  so-called  long  and  short  haul  rule,  leaving  for  the  determi- 
nation of  the  Commission  the  questions :  First,  the  alleged 
unreasonableness  of  the  rates  to  Chattanooga,  and,  Second,  the 
alleged  undue  and  unreasonable  discrimination  in  the  adjust- 
ment of  the  rates  to  Chattanooga  and  Nashville,  respectively. 
The  ground  upon  which  the  Supreme  Court  overturned  the 
order  of  the  Commission  in  the  former  case  was  that  it  did  not 
consider  competition  between  rail  caniers  to  Nashville  and 
competition  of  markets  affecting  the  rates  to  that  place. 

There  are  three  material  and  important  facts  shown  in  this 
case  which  were  not  shown  before  the  Commission  in  the  former 
case ;  to  wit,  First,  that  transportation  by  water  is  quite  as 
effective  to  Chattanooga  now  as  to  Nashville ;  Second,  that  all 
of  the  rates  in  question  are  the  product  of  the  concurrent  or  joint 
action  of  the  carriers  alleged  to  be  in  competition,  though  in 
fact  not  competing,  as  to  the  rates  ;  but,  on  the  contrary,  estab- 
lishing the  same  and  maintaining  them  by  a  common  under- 
standing and  cooperation  in  restraint  of  competition  ;  Third, 
that  the  Louisville  &  Nashville  IJaili-oad  Company  controls  the 
Nashville,  Chattanooga  &  St.  Louis  Railway  Company  and  its 


•_)'.!()  l;All.\\.\^    I'Kor.iJOMS 

linos  l)V  the  nw  iicisliip  ol"  ;i  majority  of  the  stock  of  the  latter 
foiupiiny. 

It  is  true  that  soiiu'  of  these  facts  were  brought  out  in  the  case 
l)eft)re  the  Court  for  the  enforcement  of  the  order  of  the  Com- 
mission ;  but  the  Supreme  Court  appears  to  have  held  that  they 
i-ould  not  be  considered  by  the  Court  in  upholding  a  decision  by 
the  Commission  not  based  upon  these  facts  but  upon  an  erro- 
neons  interpretation  of  the  long  and  short  haul  clause  whereby 
material  testimony  had  been  excluded  from  its  consideration. 

In  a  pamphlet  published  jointly  by  the  defendants,  the  Louis- 
ville &  Nashville  Railroad,  the  Nashville,  Chattanooga  &  St. 
Louis  Railway  and  the  Southern  Railway,  entitled  "  Tennessee," 
there  appears  the  following : 

Chattanooga  is  the  terminus  of  more  leading  railway  lines  and  is  reached 
by  a  larger  number  of  competing  systems  than  any  other  point  in  the  South. 
Extending  north  to  Cincinnati,  a  distance  of  338  miles,  is  the  Cincinnati 
Southern  Railway,  a  part  of  the  Cincinnati,  New  Orleans  &  Texas  Pacific 
((^ueen  &  Crescent)  System,  making  connection  at  Burgen,  Ky.,  for  Louis- 
ville and  the  Northwest.  Washington,  New  York,  and  the  New  England 
cities  are  reached  by  the  Southern  Railway,  via  Knoxville,  Asheville,  and 
Salisbury.  Atlanta  and  the  Southeastern  Atlantic  Coast  and  Gulf  cities  are 
reached  from  Chattanooga  by  two  conii^eting  lines,  the  Western  &  Atlantic 
Railroad  and  the  Georgia  Division  of  the  Southern  Railway.  Due  south 
extends  the  Chattanooga,  Rome  &  Southern  Railroad,  a  distance  of  140 
miles  to  Carrolton,  Ga.  The  Chattanooga  Southern,  another  line  extending 
southward  from  Chattanooga,  has  been  completed  to  Gadsden,  Ala.,  a  dis- 
tance of  91  miles  with  fair  prospects  of  being  extended  farther  south  at 
an  early  date.  To  the  southwest  the  Alabama  Great  Southern  (Queen  & 
Crescent)  reaches  Birmingham,  Ala.,  and  jNIeridian,  Miss.,  the  latter  city 
V^eing  distant  20.5  miles  from  Chattanooga,  and  continuing  from  IMeridian 
over  the  same  system  to  New  Orleans  and  Texas  points.  Due  west  extends 
the  Memphis  &  Charleston  Railroad  to  IMemphis,  310  miles,  and  northwest, 
the  Nashville,  Chattanooga  &  St.  Louis  Railway  reaches  Nashville  and  cities 
of  the  Northwest  and  Southwest. 

*  *  *  Geographically,  Chattanooga  is  so  situated  as  to  eventually 
become  a  jobbing  market  of  more  than  ordinary  importance.  The  numer- 
ous lines  of  railway  radiating  from  Chattanooga  like  the  spokes  of  a  wheel 
and  reaching  every  section  of  Tennessee  and  adjoining  states,  warrants  this 
statement.  Iler  rivals  for  the  jobbing  trade  are  Nashville,  151  miles  to  the 
northwest;  Knoxville,  112  miles  northeast;  and  Atlanta,  138  miles  south. 
Her  xkl/tpirif/  facilities,  however,  are  superior  in  those  of  either  of  these  cities, 
notably  so  in  the  cases  of  Nashville  and  Knoxville.    Taking  Into  account  the 


I 


THE   CHATTANOOGA  CASE 


201 


claims  of  these,  cities,  what  might  be  termed  the  "  legitlmnte  "  trade  of  Chat- 
tanooga covers  a  strij}  of  territory  extending  noi'theast  and  southwest,  a  distance 
of  about  200  miles  in  length  hi/  125  miles  in  width. 

These  statements  do  not  in  my  judgment  exaggerate  the  ad- 
vantageous natural  position  of  Chattanooga.  The  confederated 
action  of  these  carriers  and  others  has  greatly  impaired  the  vigor 
of  Chattanooga  in  this  field. 

The  Commission  finds  that  "  the  Chattanooga  rates  from  east- 
ern seaboard  cities  yield  rates  per  ton  per  mile  much  greater 
than — in  most  instances  more  than  double  — the  average  receipts 
per  ton  per  mile  of  the  principal  defendants,  of  roads  throughout 
southern  territory  and  of  roads  throughout  the  United  States." 
"  The  rates  in  question  from  New  York  and  other  eastern  sea- 
board cities  to  Chattanooga  were  established  by  the  roads  as  mem- 
bers of  the  Southern  Railway  &  Steamship  Association,  and  are 
still  with  immaterial  exceptions  maintained  as  originally  fixed." 

The  rates  per  ton  per  mile  on  the  six  numbered  classes  for  the 
haul  of  848  miles  (short  line  distance)  from  New  York  to  Chat- 
tanooga are  as  follows  : 


1 

2 

3 

4 

5 

6 

2.68  cents 

2.31  cents 

2.02  cents 

1.72  cents 

1.41  cents 

1.15  cents 

The  average  of  the  above  rates  per  ton  per  mile  to  Chattanooga 
being  1.88  cents. 

The  revenue  per  ton  per  mile  of  the  principal  defendants 
named  below,  taken  from  their  annual  reports  for  the  years  end- 
ing June  30,  1900,  and  1901,  is  shown  in  the  following  table  : 


1900 

1901 

Southern  Railway  Company              .... 

916  cents 

9.36  cents 

Louisville  &  Nashville  llaih'oad  Company  . 

.752      " 

.772      " 

Nasliville,  Chattanoop;a  &  St.  L.  Ry.  Company 

.887      " 

.883      " 

Cincinnati,  N.  0.  &  T.  P.  Ry.  Company    .     . 

.7.30      " 

.745      " 

Chesapeake  &  Ohio  Railway  Company       .     . 

.34.3      " 

.388      " 

1  135      " 

1  097      " 

Central  of  Georgia  Railroad  Company  . 

1.096      " 

1.064      " 

Norfolk  &  Western  Railway  Company  .     .     . 

.430      " 

.461      " 

.).).) 


KAii.w  A^■  iM;()r.Li':.Ms 


Katks   iKit    Ton    I'll:    Miii     n>u    iiii:    Vkau   kndino  Jitnk  30,    1000 

Of  roads  ill  West  Vir,>,Miiia,  Virginia,  Noi'th  Carolina  ami 

South  Carolina ."iOf)  cents 

Of  roads  in  Ki'ntucky,  Tennessee,  Mississippi,  Alabama, 

Georgia  and  Florida 808      " 

Of  roads  throughout  United  States 120      " 

Illustrativt.'  of  the  discrimination  of  the  present  adjustment 
of  r;ites  against  Chattanooga  and  in  favor  of  Nashville  the  fol- 
lowing table  is  inserted,  showing  combination  of  class  1  through 
rates  from  Boston  and  New  York  to  Chattanooga  and  Nashville 
witb  local  class  1  rates  from  Chattanooga  and  Nashville  to  in- 
U'rmediate  stations  on  the  Nashville,  Chattanooga  &  St.  Louis 
1 1  ail  way,  and  distances  from  Chattanooga  and  Nashville  to  those 
stations : 


Distances 

Distances 

Nashville 

Chattanooga 

To 

FUOM 

FROM 

Combination 

Combination 

Nashville 

Chattanooga 

Kates 

Rates 

Bolivar     .     .     . 

118  miles 

33  miles 

91  +  50  =  141 

114  +  28  =  142 

Bass    .... 

107      " 

44      " 

91  +  49=140 

114  +  31  =  145 

Sherwood      .     . 

97      " 

54      " 

91+45  =  136 

114  +  34  =  148 

Cowan 

87      " 

64      " 

91+43  =  134 

114  +  36  =  150 

Estill  Spring 

77      " 

74      " 

91+40=131 

114  +  40  =  154 

Normandy     .     . 

62      " 

89      " 

91  +  35  =  126 

114  +  43  =  157 

Wartrace      .     . 

55      " 

96      " 

91  +  34  =  125 

114  +  46  =  160 

Kosterville     .     . 

46      " 

105      " 

91  +  31  =  122 

114  +  50  =  164 

Winsted   .     .     . 

37      " 

114      " 

91  +  30  =  121 

114  +  50  =  164 

F"lorence  .     .     . 

26      " 

125      " 

91  +  22  =  113 

114  +  50  =  164 

Smyrna    .     .     . 

20      " 

131      " 

91+20=111 

114  +  50=164 

Kimbro     .     .     . 

13      " 

137      " 

91  +  15  =  106 

114  +  50  =  164 

Glencliffe       .     . 

5      " 

146      " 

91  +  12  =  103 

114  +  50  =  164 

On  all  the  other  classes  as  well  as  class  1,  the  combinations 
are  in  favor  of  Nashville. 


The  following  table  gives  the  combination  of  class  1  rates 
from  New  York  to  Nashville  and  Chattanooga  with  the  local 
rates  from  those  points  to  certain  stations  in  Tennessee,  Missis- 
sippi and  North  Alabama  ;  also  distances  from  Chattanooga  and 
Nashville  to  those  stations  : 


THE  CHATTANOOGA  CA8E 


293 


Distances 

Distances 

N.iSHVILLE 

Chattanooga 

To 

FROM 

FROM 

Combination 

Combination 

Nashville 

Chattanooga 

Bates 

Rates 

Winchester,  Tenn. 

85  miles 

72  miles 

$1.-33 

SI.  53 

Stevenson,  Ala.    . 

113      " 

38      " 

1.41 

1.44 

Hollywood,  Ala.  . 

126      " 

51      " 

1.46 

1.55 

Cowan,  Tenn.  .     . 

87       " 

64      " 

1.34 

1.50 

Gadsden,  Ala.  .     . 

210      " 

92      " 

1.63 

1.71 

Anniston,  Ala. 

271       " 

137      " 

1.63 

1.71 

Huntsvllle,  Ala.    . 

146      " 

97      " 

1.35 

1.54 

Meridian,  Miss.     . 

3G0      " 

296      " 

1.74 

1.91 

Decatur,  Ala.  .     . 

121      " 

122      " 

1.35 

1.54 

Tuscumbia,  Ala.  . 

134      " 

165      " 

•     1.35 

1.64 

Nashville,  it  will  be  perceived,  has  the  advantage  in  rates  over 
Chattanooga  at  all  these  stations,  many  of  which  are  beyond 
Chattanooga  from  Xashville.  For  example,  at  Gadsen,  Alabama, 
210  miles  from  Nashville  and  92  miles  south  from  Chattanooga, 
the  Chattanooga  combination  rate  exceeds  the  Nashville  com- 
bination rate  by  8  cents. 

The  following  table  gives  the  excesses  of  what  are  termed  the 
Nashville  combination  distances  over  the  Chattanooga  comhhiation 
distayices  to  the  stations  named  in  the  preceding  table  and  also 
the  excesses  of  the  Chattanooga  combination  rates  over  the  Nash- 
ville combination  rates  in  cents  per  hundred  pounds  and  on  car 
loads  of  40,000  pounds.  By  combination  distances  is  meant  the 
distances  from  the  point  of  shipment.  New  York  in  this  instance, 
to  Chattanooga  and  Nashville,  respectively,  added  to  the  dis- 
tances from  those  points  to  the  stations  named : 


Excesses  of 

Excesses  of  Chattanooga 

Nashville  Combina- 

Combination Rates  over  Nashville 

tion  Distances 
over  Chattanooga 

Combination  Rates 

Combination 

In  Cents  per 

On  Car  Loads  of 

Distances 

100  Pounds 

40,000  Pounds 

Winchester    .     . 

.   164  miles 

20  cents 

$80.00 

Stevenson  . 

226      " 

3      " 

12.00 

Hollywood 

226      " 

9      " 

36.00 

Cowan  .     . 

174      " 

16      " 

64.00 

Gadsden     . 

269      " 

8      " 

32.00 

Anniston   . 

285      " 

8      " 

32.00 

Hunt-sville 

200      " 

22      " 

88.00 

Meridian    . 

215      " 

17      " 

08.00 

Decatur 

150      " 

19      " 

76.00 

Tuscumbia 

120       " 

29      " 

116.00 

Tlu'  shortest  ;ill  rail  liiu'  houi  New  York  to  Chattanooga  is 
(•/</  Alexaiulria,  S  k)  miles  ;  that  to  Nashville  is  via  Alexandria 
ami  through  Cliattaiiooga,  Wl  miles.  It  is  shown  that  the  greater 
part  of  the  freight  moving  from  the  east  to  both  Nashville  and 
(.'haiianooga  moves  via  Norfolk,  sea  and  rail.  Chattanooga,  there- 
fore, is  materially  nearer  both  the  markets  of  production  and 
shipment,  and  Norfolk,  the  point  where  for  the  most  part  the 
sea  earriage  ends  and  the  rail  haul  begins.  Nothing  else  appear- 
ing, it  would  seem  clear  upon  this  situation  that  Chattanooga 
should  have  even  lower  rates  than  Nashville.  The  reverse,  how- 
ever, is  the  fact,  and  this  is,  in  large  part,  the  cause  of  complaint, 
rpon  what  theory  is  this  reverse  order  of  rates  —  lower  for  the 
long  liaul  to  the  more  distant  point  —  justified?  The  justifi- 
cation is  put  mainly  upon  the  ground  of  Nashville's  closer  [)rox- 
imity  to  the  territory  north  of  the  Ohio  river  where  a  lower 
scale  of  rates  has  been  fixed  by  the  associated  carriers  of  that 
territory  than  by  the  associated  carriers  in  Southern  territory  by 
practically  the  same  methods  and  upon  the  ground  that  Nash- 
ville desires  to  meet  in  competition  the  cities  on  the  Ohio  river, 
and  St.  Louis  in  the  region  between  these  cities  and  Nashville. 

The  same  theory  that  justifies  and  requires  rates  to  Nashville 
which  accomplish  this  purpose  would  seem  from  equal  necessity 
to  require  a  like  adjustment  of  rates  to  Chattanooga  to  give  her 
a  fair  chance  in  competition  with  Nashville  in  territory  between 
that  city  and  Chattanooga.  But  this  lias  been  utterly  ignored  in 
the  framework  of  this  adjustment  of  rates  by  the  singleness  of 
action  of  the  associated  carriers  south  of  the  Ohio  river.  Chat- 
tanooga is  not  only  met  in  substantially  all  the  regions  between 
the  two  cities  by  Nashville  with  an  overwhelming  advantage  to 
the  latter,  but  is  overreached  by  the  advantages  of  the  latter  in 
rates  to  many  important  points  south  of  Chattanooga.  Not  only 
is  this  true,  as  will  be  seen  by  the  combination  of  rates  on  east- 
ern traffic  which  as  to  Nashville  passes  through  Chattanooga  on 
through  rates  from  the  East  and  then  out  from  Nashville  in  dis- 
tribution by  Nashville  jobbers  back  through  and  around  Chat- 
tanooga, but  Chattanooga  is,  by  the  methods  of  rate  making  in 
vogue  in  this  territory,  grouped  with  a  large  number  of  other 


THE  CHATTANOOGA  CASE  295 

places  far  to  the  south  and  west  of  her  taking  the  same  rates 
under  this  so-called  "equalized  system,"  so  that  these  places 
have  their  natural  disadvantages  of  location  overcome  by  more 
favorable  rates  to  the  detriment  of  Chattanooga,  which  is  not 
only  nearer  the  points  of  production  and  shipment  than  most 
of  the  places  in  this  group  but  is  also  much  nearer  to  the 
Virginia  cities,  Ohio  river  points,  and  Nashville,  all  of  which 
enjoy  the  lower  scale  of  official  or  Trunk  Line  rates  and 
classifications. 

In  the  argument  of  the  case  in  court  for  the  enforcement  of 
the  previous  order  of  the  Commission  counsel  for  the  carriers 
said :  "  The  Louisville  &  Nashville  Railroad  is  vitally  interested 
in  maintaining  the  commercial  importance  of  Nashville,"  and 
urged  there  as  in  this  case  that  rates  to  Nashville  not  higher 
than  at  present  are  necessary  "  to  enable  Nashville  to  compete 
with  Cincinnati,  Louisville  and  Evansville  in  the  territory  be- 
tween Nashville  and  the  Mississippi  river."  I  repeat  that  like 
reasoning  would,  upon  the  undisputed  facts  of  this  case,  entitle 
Chattanooga  to  such  rates  as  would  give  her  a  fair  chance  in 
competition  with  Nashville  in  the  territory  between  the  two 
cities,  and  certainly  in  that  south  of  Chattanooga.  Nor  can  the 
Louisville  &  Nashville  Railroad,  in  the  light  of  the  testimony 
in  this  case,  disclaim  responsibility  in  common  with  the  other 
carriers  for  the  rates  and  adjustments  in  question.  What  con- 
cessions one  to  another  these  carriers  have  made  from  time  to 
time  during  the  18  or  20  years  they  have  maintained  these  rates 
and  adjustments,  and  what  compromises  of  the  views  and  pur- 
poses of  individual  carriers  in  respect  thereof,  in  disregard  of 
that  equality  of  treatment  to  all  which  the  law  enjoins,  have 
been  made  in  their  conferences  in  order  to  avoid  competition  in 
rates  and  secure  the  greatest  net  revenue  to  themselves,  we  do 
not  know.  This  can  probably  never  be  shown,  for  these  things 
are  "done  in  a  corner."  But  it  is  not  probable  that  this  adjust- 
ment and  scale  of  rates  could  have  remained  intact,  as  shown, 
for  so  long  a  period  except  by  the  substantial  agreement  of  the 
carriers  in  restraint  of  competition. 


'_>!)()  I;A1I.\\.\^■  riior.i^KMs 

("lialt;iiioi)u;;i  lias  hoi'u  coinpluining  of  aixl  protesting  against 
tlu'se  rates  i-ontiiiuously  for  more  than  fourteen  years.  The 
foregoing  facts  and  otiier  testimony  in  the  case  indicate  tlie 
extent  and  hurtfnhiess  of  the  discrimination  against  that  city; 
also  the  excessiveness  of  the  rates  to  Chattanooga.  The  facts 
seem  to  me  to  be  convincing  that  the  complaint  is  well  founded 
and  that  the  rates  should  be  condemned  by  an  order  to  that 
effect. 


XI 

THE  LONG  AND   SHORT  HAUL   CLAUSE  i 
The  St.  Cloud,  Minn.,  Case 

{Vide  map,  p.  298) 
Prouty,  Commissioner  .•***** 

The  railroad  of  the  defendant  extends  from  Minneapolis  and 
St.  Paul  in  a  northwesterly  and  northerly  direction  to  Brain- 
erd,  Minn.,  thence  easterly  to  Duluth,  Minn.,  and  Superior, 
Wis.,  the  distance  from  St.  Paul  to  Duluth  being  241  miles. 
St.  Cloud  is  upon  the  line  of  the  defendant,  76  miles  north  of 
St.  Paul.  The  defendant  engages  in  the  transportation  of  freight 
both  ways  between  Duluth  and  St.  Paul,  through  St.  Cloud. 
Its  rates  from  St.  Paul  to  Duluth  are  less  than  those  from  St. 
Cloud  to  Duluth.  In  the  opposite  direction  its  rates  from  Duluth 
to  St.  Paul  are  less  than  those  from  Duluth  to  St.  Cloud. 

The  two  rates  specifically  referred  to  in  the  testimony  are 
those  upon  flour  from  St.  Paul  and  Minneapolis  east,  and  those 
upon  coal  from  Duluth  and  Superior  west.  The  through  rate 
on  flour  from  St.  Paul  to  New  York  via  the  defendant's  line  to 
Duluth,  and  thence  by  water  and  rail  to  New  York,  was,  at  the 
time  of  the  hearing,  21 1  cents  per  hundred  pounds.  The  de- 
fendant apparently  published  no  through  rate  from  St.  Cloud 
to  New  York,  but  applied  to  such  shipments  its  local  rates 
from  St.  Cloud  to  Duluth  or  Superior,  in  combination  with  the 
through  rate  from  those  cities  to  New  York.  The  local  rate 
from  St.  Cloud  was  12  cents,  and  the  through  rate  from  Duluth 
16 1^  cents,  making  the  rate  from  St.  Cloud  to  New  York  28^ 
cents.    Flour  from  St.  Paul  to  New  York  by  the  defendant's  line 

^  Decided  November  29,  1899.  Interstate  Commerce  Reports,  Vol.  VIII, 
pp.  346-363.  The  Long  and  Short  Haul  Clause  is  discussed  in  Ripley's  Rail- 
roads :  Rates  and  Regulation,  chap.  xix. 

297 


•JPS 


|;\1I.\\A\     I'KOI'.I.KMS 


jKissi's  tlirou>j;li  St.  (loud.  It  was  conceded  by  the  defendant 
that  its  division  of  the  tlnougli  flour  rate  from  St.  Paul  yielded 
it  altout  ;').3T5  cents  per  hundred  pounds,  as  against  12  cents 
])er  huii(h'ed  pounds  when  tlie  tvansj)ortation  was  from  St.  Cloud. 


The  rates  on  coal  from  Duluth  to  St.  Cloud  are,  soft  coal 
81.60  per  ton,  hard  coal  i|2.00  per  ton  ;  to  St.  Paul  .|1.25  per 
ton  for  hard  coal  and  75  cents  for  soft  coal.  The  transportation 
in  the  latter  case  is  through  St.  Cloud. 

There  are  three  lines  of  railroad,  besides  that  of  the  defend- 
ant, connecting   St.  Paul  and   Minneapolis  with  Duluth  and 


THE   ST.  CLOUD  CASE  299 

Superior, — namely :  the  Chicago,  St.  Paul,  Minneapolis  &  Omaha, 
distance  179  miles;  the  St.  Paul  &  Duluth,  160  miles  ;  the  Great 
Northern,  over  the  Eastern  Minnesota,  169  miles.  It  was  also 
said  that  the  Great  Northern  had  in  process  of  construction  a 
line  by  which  the  distance  would  be  somewhat  reduced.  Large 
quantities  of  freight  move  between  these  points,  and  these  three 
lines  are  active  competitors  for  tliis  traffic.  The  rail  lines  from 
St.  Paul  to  Duluth  in  connection  with  water  lines  upon  the 
Great  Lakes  furnish  a  means  of  communication  between  St. 
Paul  and  the  northwest  and  the  Atlantic  seaboard  and  the  east. 
Lines  of  railway  leading  south  from  St.  Paul  through  Chicago 
and  other  points  reach,  by  their  connections,  the  eastern  section 
of  the  country  as  well,  and  there  is  fierce  competition  between 
the  lines  leading  south  and  the  lines  leading  to  Duluth  and 
Superior,  for  business  between  the  northwest  and  the  seaboard. 

In  the  making  of  their  rates  the  three  lines  above  mentioned 
between  St,  Paul  and  Duluth  observe  at  the  present  time  the 
rule  of  the  fourth  section ;  that  is,  they  make  no  higher  rate 
from  or  to  the  intermediate  point  than  is  made  from  or  to  the 
more  distant  point.  Anoka,  Elk  River,  Princeton  and  Milaca 
are  situated  upon  the  line  of  the  Great  Northern,  and  take  the 
same  rate  as  do  St.  Paul  and  Minneapolis.  The  line  of  the 
defendant  runs  through  Anoka  and  Elk  River,  the  former  being 
29  and  the  latter  41  miles  from  St.  Paul,  and  the  rates  to  and 
from  these  points  by  the  defendant's  line  are  the  same  as  those 
to  and  from  Minneapolis  and  St.  Paul. 

It  has  for  some  fifteen  years  been  physically  possible  to  trans- 
port freight  between  Duluth  and  St.  Paul  by  the  defendant's  line 
in  question  ;  but  in  point  of  fact  until  April,  1889,  the  defendant 
did  not  publish  a  tariff  by  that  route,  owing  apparently  to  the 
fact  that  it  was  much  more  circuitous  than  the  others  in  use. 
During  certain  seasons  of  the  year  the  defendant  is  compelled 
to  haul  in  the  transaction  of  its  business  empty  cars  from 
Duluth  to  St.  Paul,  and  during  other  times  of  the  year  to  haul 
empty  cars  from  St.  Paul  to  Dulnth.  Its  traffic  manager  testified 
that  his  attention  was  called  to  this  fact  l)y  the  management,  and 
that  he  was  asked  to  provide,  if  possible,  some  freight  for  these 


300  KAiL\\.\\    1'i;()1'.m;ms 

emntios,  and  that  tor  this  purpose,  in  the  hope  that  some  traffic 
iiiii,'hl  hi'  ()l)taim'cl,  especially  Hour  from  Minneapolis  to  the  east 
and  eoal  from  Dululh  to  St.  Paul,  the  rates  in  question  were 
puhlislu'd.  in  the  publication  of  these  tariffs  the  defendant 
simi>lv  met  tlu)se  rates  which  were  already  in  force  by  other 
lines.  It  appears  that  the  other  lines  publish,  either  by  some 
anaui^'enieiit  amonir  themselves,  or  through  some  more  com- 
prehensive association,  connnon  tariffs  ;  for  some  reason  they 
declined  to  publish  the  rates  of  the  defendant  upon  these  tariffs, 
and  the  defendant  was  compelled  to  and  did  print  its  own  rate 
sheets.  Hates  to  and  from  St.  Cloud  were,  previous  to  the  pub- 
lication of  this  tariff,  the  same  that  they  were  afterwards ;  nor 
were  the  rates  at  any  of  the  points  mentioned  in  any  way 
changed  by  the  putting  in  of  the  defendant's  schedule.  Whether 
rates  between  St.  Paul  and  Duluth,  and  at  other  points  taking 
those  rates,  have  been  influenced  or  affected  since  the  publica- 
tion of  this  schedule  by  the  fact  that  the  defendant  has  entered 
the  field  as  a  competitor,  we  cannot  determine.  The  St.  Paul  rates 
are  at  the  present  time  higher,  and  the  discrimination  against 
St.  Cloud  therefore  less,  than  when  the  complaint  was  filed. 

There  are  situated  at  or  near  St.  Cloud  three  flouring  mills 
besides  that  of  the  complaining  company.  That  of  the  com- 
plainant has  a  capacity  of  1000  barrels  per  day.  The  others 
are  considerably  smaller.  The  wheat  which  is  ground  at  these 
mills  is  partly  drawn  from  local  territory,  and  is  partly  brought 
in  from  more  distant  points.  The  milling-in-transit  privilege 
is  available  there  upon  the  payment  of  an  additional  2  cents 
per  hundred  pounds. 

About  one  half  of  the  flour  ground  at  the  mill  of  the  complain- 
ant company  is  exported.  It  was  said  that  the  profit  upon  this 
flour  was  often  not  more  than  from  1  to  3  cents  per  barrel.  It 
follows,  therefore,  that  this  mill  cannot  compete  with  Minne- 
apolis and  other  points  enjoying  the  same  rate,  if  its  flour  costs 
the  same  price  at  the  mill.  It  does  not,  for  the  reason  that  the 
mills  at  St.  Cloud  pay  less  for  their  wheat  than  do  those  at  Min- 
neapolis. It  was  said  in  testimony  that  the  price  at  St.  Cloud 
was  usually  about  6  cents  per  bushel  below  the  Minneapolis 


THE   ST.  CLOUD   CASE  301 

price.  A  change  in  the  rate  on  flour  to  the  Atlantic  seaboard 
works  a  corresponding  change  in  the  price  which  mills  at  St, 
Cloud  can  pay  for  local  wheat.  Princeton  is  situated  some  25 
miles  east  of  St.  Cloud.  The  Princeton  miller  enjoys  the  same 
rate  as  does  Minneapolis,  and  he  can  and  does  pay  the  farmer 
for  his  wheat  some  6  cents  a  bushel  more  than  the  miller  at 
St.  Cloud,  with  the  result  that  intermediate  territory  between 
St.  Cloud  and  Princeton  delivers  most  of  its  wheat  at  Princeton 
rather  than  at  St.  Cloud. 

Considerable  testimony  was  introduced  in  behalf  of  the  city 
of  St.  Cloud,  tending  to  show  that  these  freight  rates  were 
much  to  the  disadvantage  of  that  city  as  compared  with  Prince- 
ton, Elk  River,  and  points  in  the  vicinity  taking  the  Minne- 
apolis rate.  This  is  of  necessity  true.  All  commodities  coming 
by  rail  cost  the  retail  merchant  more  at  St.  Cloud  than  at 
Princeton  or  Elk  River.  The  expense  of  living  is  somewhat 
greater  in  that  city.  The  difference  in  the  freight  rate  upon 
heavy  articles  into  which  the  rate  enters  as  an  important  factor 
is  sufficient  to  divert  the  business  to  Princeton  and  Elk  River  as 
against  St.  Cloud.  We  find,  as  a  fact  from  the  testimony,  that 
business  is  so  diverted,  and  that  St.  Cloud,  owing  to  the  circum- 
stance that  it  pays  the  higher  rate,  is  put  to  a  disadvantage  as 
compared  with  Milaca,  Princeton,  Anoka  and  Elk  River.  These 
findings  refer  to  conditions  existing  at  the  time  of  the  hearing. 

The  mill  of  the  complaining  company  is  situated  upon  the 
Great  Northern  Railroad,  and  can  only  be  reached  by  the  road 
of  the  defendant  by  the  payment  of  a  switching  charge  of  1*5.00 
per  car.  The  flour  traffic  of  the  complainant  company,  which 
is  very  large,  seems  to  have  been  sent  entirely  over  the  Great 
Northern.  Only  two  cars  have  ever  been  tendered  the  defend- 
ant for  shipment  by  the  company  complainant,  and  these  were 
tendered  for  the  purpose  of  enabling  it  to  establish  its  case  in 
this  proceeding.  One  of  them  was  accepted  and  shipped  to  its 
eastern  destination.  The  other  was  declined.  The  freight  depots 
of  the  two  roads  are  about  equally  accessible  to  the  business  por- 
tion of  St.  Cloud,  although  that  of  the  defendant  is  situated 
across  the  river,  in  what  is  sometimes  known  as  East  St.  Cloud. 


302  i; A 11, WAV  ruor.LKiMS 

No  claim  was  iiuuU'  tluil  the  rates  to  and  from  St.  Cloud  were 
unreasonable  of  lliemselves,  unless  made  so  by  comparison  with 
the  lower  r.ites  to  and  from  the  more  distant  points. 

It  tlid  not  dclinitcly  ai){)car  what  amount  of  through  traffic 
between  St.  Paul  and  Duluth  had  been  carried  by  the  defendant 
under  its  present  tarilT.  The  traffic  manager  of  that  company 
tcstilied  that  in  the  month  of  July  7223  carloads  of  flour  left 
Minneapolis  for  the  east,  that  of  this  number  his  road  carried  but 
73,  and  tliat  in  no  month  between  the  putting  in  of  these  rates 
and  the  date  of  the  hearing  in  August  had  his  line  carried  2  per 
cent  of  the  total  out  of  Minneapolis.  No  statement  was  made  as 
to  traffic  in  the  opposite  direction,  but  it  fairly  appeared,  from  all 
that  was  said,  that  up  to  the  date  of  the  hearing  the  amount  of 
through  business  done  by  the  defendant  had  been  insignificant. 

The  statute  of  Minnesota  provides  that  no  greater  charge  shall 
be  made  for  the  short  than  for  the  long  haul,  in  the  same  direc- 
tion, the  less  being  included  within  the  greater,  without  the 
permission  of  the  Railroad  Commission  of  that  State.  St.  Paul 
and  Duluth  are  both  situated  in  the  State  of  Minnesota,  and 
the  transportation  between  those  points  is  therefore  intrastate. 
When  the  defendant  first  determined  to  meet  the  rates  of  its 
competitors  it  did  so  b}^  the  publication  of  a  tariff  between  St. 
Paul  and  Duluth,  in  which  the  rate  between  those  points  was 
made  lower  than  the  rate  from  local  intermediate  points.  Either 
before  the  putting  in  of  this  tariff  or  after  it  had  been  published 
the  defendant  applied  to  the  Railroad  and  Warehouse  Commis- 
sion of  Minnesota  for  leave  to  make  the  lower  rate  between  the 
more  distant  points,  and  this  application  was  denied  by  that 
board.  Thereupon  the  defendant  published  the  through  rates 
in  question,  claiming  that  these,  being  interstate,  were  beyond 
the  jurisdiction  of  the  State  Commission. 

Conclusions 

Is  the  action  of  the  defendant  in  charging  more  to  and  from 
St.  Cloud,  an  mtermediate  point,  than  is  charged  to  and  from 
St.  Paul,  a  more  distant  point,  in  violation  of  the  fourth  section? 


THE   ST.  CLOUD  CASE  303 

The  defendant  affirms  that  it  is  not,  for  the  reason  that  the 
transportation  is  not  conducted  "under  substantially  similar 
circumstances  and  conditions." 

The  only  fact  relied  upon  by  the  defendant  to  make  out  a 
dissimilarity  of  circumstances  and  conditions  is  competition  be- 
tween the  four  lines  of  railway  connecting  Duluth  and  St.  Paul, 
of  which  the  defendant  is  one.  Water  competition  is  not  to  be 
considered,  for  the  reason  that,  while  such  competition  is  an  im- 
portant factor  in  determining  the  through  rate  between  New  York 
and  St.  Paul,  of  which  the  rate  in  question  is  a  part,  the  rail  lines 
from.  Duluth  to  St.  Paul  are  links  in  the  lake  and  rail  route, 
and  cannot,  therefore,  be  heard  to  set  up  water  competition  in 
excuse  of  the  rate  which  they  themselves  make  in  furtherance 
of  that  competition. 

In  its  earliest  decisions  this  Commission  said  that  competition 
between  carriers  subject  to  the  Act  could  only  make  out  substan- 
tially dissimilar  circumstances  and  conditions  in  rare  and  pecul- 
liar  instances,  and,  afterwards,  that  such  competition  could  not 
be  shown  in  any  instance  for  that  purpose.  This  rule  was 
applied  by  the  Commission  in  many  cases,  and  finally  came 
before  the  Supreme  Court  of  the  United  States  for  consideration 
in  Interstate  Commerce  Commission  v.  Alabama  MicUa^id  R.  Co., 
168  U.  S.  144,  42  L.  ed.  414,  18  Sup.  Ct.  Rep.  45.  That  court 
declined  to  accept  the  construction  of  the  Commission  in  this 
respect,  and  held  that  competition  between  railw^ays  subject  to 
the  Act  should  be  considered  in  determining  whether  the  circum- 
stances and  conditions  were  similar.  The  present  case  must,  of 
course,  be  disposed  of  in  accordance  with  that  interpretation 
of  the  Act,  and  not  in  accordance  with  the  views  previously 
entertained  and  applied  by  this  Commission. 

It  has  been  claimed  by  some,  in  reliance  upon  the  above  deci- 
sion, and  is  perhaps  the  contention  of  the  defendant  in  this 
case,  that  if  actual  bona  fide  railway  competition  is  shown,  that 
of  itself  creates  the  dissimilar  circumstances  and  conditions 
necessary  to  except  the  defendant  from  the  operation  of  the 
rule  of  the  fourth  section.  That  such  was  not  the  understand- 
ing of  the  Supreme  Court  is  plainly  asserted  in  the  language 


of  the  opinion.    On   piioe   IT)?,   L.  ed.  423,  Sup.  Ct.  Rep.  49, 

it  is  said  : 

In  onl.T  furtliiT  to  ,<;ii:utl  against  any  niisa])in-eliensi()u  of  the  scope  of 
our  tU'cisiou  it  may  I'c  well  to  observe  that  we  do  not  liold  that  the  mere 
fact  of  competition,  no  matter  wliat  its  character  or  extent,  necessarily 
relieves  the  carrier  from  the  restraints  of  the  third  and  fourth  sections,  but 
only  that  these  sections  are  not  so  stringent  and  imperative  as  to  exclude 
in  all  cases  the  matter  of  competition  from  consideration  in  determining 
the  ipu'stions  of  '>  undue  or  unreasonable  preference  or  advantage,"  or  what 
are  "  substantially  similar  circumstances  and  conditions."  The  competition 
may  in  .some  cases  be  such  as,  having  due  regard  to  the  interests  of  the 
public  and  of  the  carrier,  ought  justly  to  have  effect  upon  the  rates,  and  in 
such  cases  there  is  no  absolute  rule  which  prevents  the  Commission  or  the 
courts  from  taking  that  matter  into  consideration. 

It  is  apparent  from  the  above  quotation  that  what  the  court 
held  was,  not  that  competition  between  railways  m  and  of  itself 
created  dissimilar  circumstances  and  conditions,  but  that  it  was 
one  factor  which  might  be,  and  perhaps  ought  to  be,  taken  into 
account  in  determining  that  question.  The  question  is  still 
largely  one  of  fact,  and  is  in  each  particular  instance  whether, 
in  view  of  all  the  facts  surrounding  that  individual  instance, 
the  circumstances  and  conditions  are  so  dissimilar  as  to  justify 
the  greater  charge  for  the  shorter  distance.  In  answering  this 
question  we  are  to  consider  the  interests  of  all  parties,  the  car- 
rier as  well  as  the  public. 

That  in  the  case  under  consideration  there  is  a  discrimination, 
and  a  most  grievous  discrimination,  owing  to  this  disparity  in 
rates,  cannot  be  denied.  The  rate  on  flour  from  St.  Cloud  to 
market  is  7  cents  per  hundred  pounds  more  than  from  Minne- 
apolis, Princeton  or  Elk  River.  This  difference  in  the  rate  is 
often  two  or  three  times  the  profit  which  the  miller  makes  in  the 
grinding  of  his  flour.  A  considerable  part  of  the  wheat  which 
is  ground  at  the  mill  of  the  complainant  and  at  the  other  mills 
at  or  near  the  city  of  St.  Cloud  is  local  wheat.  As  a  result  of 
this  difference  in  rate  this  wheat  is  worth  some  6  cents  a  bushel 
less  at  St.  Cloud  than  at  Minneapolis  or  at  Princeton  or  Elk 
River.  This  must  mean  a  difference  of  fully  -fl  per  acre  in  the 
net  product  of  land  in  the  vicinity  of  St.  Cloud,  as  compared 


THE   iST.  CLOUD   CASE  305 

with  similar  land  in  the  vicinity  of  Princeton  or  Elk  River ;  and 
this  difference  in  the  productive  value  of  the  soil  must  produce  a 
substantial  difference  in  the  value  of  the  land  itself,  and  in  the 
prosperity  of  the  owners  of  that  land,  if  long  continued. 

The  same  thing  is  true  in  a  less  degree  with  reference  to  what- 
ever St.  Cloud  consumes.  Its  anthracite  coal  must  cost  75  cents 
per  ton,  and  its  bituminous  coal  85  cents  per  ton,  more  than  at 
St.  Paul.  The  testimony  shows  that  the  difference  in  freight 
rate  is  so  great  that  in  articles  of  hardware  of  the  coarser  kinds 
the  merchants  of  St.  Cloud  cannot  compete  with  those  of  Prince- 
ton and  Elk  Kiver.  Whatever  goes  to  the  maintenance  of  life- 
in  that  community,  where  the  freight  rate  enters  into  the  price, 
costs  the  consumer  more  than  in  these  near-by  communities.  It 
is  sometimes  difficult  to  j)oint  out  the  direct  and  individual 
hardship  of  these  freight-rate  discriminations,  although  this 
could  be  done  in  the  case  under  consideration,  but  their  effect 
is  none  the  less  real ;  they  are  a  perpetual  tax  upon  the  vitality 
of  the  community  discriminated  against,  and  sooner  or  later 
must  pro.duce  a  visible  result. 

The  defendant  earnestly  insists,  however,  that  while  this  dis- 
crimination may  exist,  it  is  in  no  sense  responsible  for  it ;  that 
the  discrimination  was  equally  great  before  its  rates  between 
Duluth  and  St.  Paul  were  put  in,  and  that  the  putting  in  of 
those  rates  in  no  way  aggravated  that  discrimination.  It  urges, 
therefore,  that  inasmuch  as  these  rates  do  not  in  any  respect  in- 
jure the  complaining  company  or  the  community  of  St.  Cloud, 
while  they  do  to  some  extent  benefit  the  defendant,  they  ought 
not  to  be  declared  unlawful. 

There  is  great  force  in  this  contention  of  the  defendant. 
Having  reference  only  to  the  moment  when  these  rates  were 
first  published,  its  claim  that  the  complainants  were  in  no  way 
prejudiced  is  probably  a  valid  one.  The  rates  from  Minneap- 
olis, Anoka,  Elk  River  and  Princeton  were  the  same  before  as 
after.  The  local  rates  from  St.  Cloud  to  Duluth  were  the  same. 
The  mere  act  of  the  defendant  in  publishing  its  lower  rates 
between  the  more  distant  points  did  not,  therefore,  produce 
or  aggravate  the  disciimination  with  which  the  complainant  is 


:\[)[\  KAILWAV    TKOl'.LEMS 

timUng  fault.  But  this  ([uestiou  cannot  be  disposed  of  as  of 
the  instant  when  these  rates  were  inaugurated.  The  condition 
which  we  are  examining  is  a  continuing  one.  By  the  putting 
in  of  those  rates  the  defendant  became  a  competitor  for  this 
traflic  between  Duluth  and  St.  Paul,  and  from  that  moment 
became  a  factor  in  the  determination  of  that  through  rate, 
.lust  what  effect  the  defendant  may  have  produced  in  the  past 
upon  those  rates,  to  just  what  extent  it  may  in  the  future 
intluence  those  rates,  is  a  thing  which  can  never  be  exactly 
determined. 

The  defendant  has  the  long  line,  and  suggests  that  this  fact 
creates  a  dissimilarity  in  circumstances  and  conditions  which 
justifies  it  in  disregarding  the  rule  of  the  fourth  section,  while 
the  short  lines  are  bound  by  that  rule.  To  this  we  cannot  assent. 
Without  deciding  that  cases  may  not  arise  in  which  difference  in 
distance  may  justify  the  higher  intermediate  rate,  we  are  of  the 
opinion  that  such  effect  cannot  be  given  to  that  circumstance  in 
the  present  case.  To  permit  this  defendant  to  meet  competition 
at  the  more  distant  point  without  the  sacrifice  of  its  intermediate 
rates,  while  its  competitors  were  obliged  in  all  cases  to  reduce 
their  intermediate  rates,  would  place  those  competitors  at  the 
mercy  of  this  defendant.  It  carries  but  little  of  this  through 
traffic.  A  reduction  in  the  through  rate  has  small  effect  upon 
its  revenues,  while  it  may  bankrupt  its  rivals.  If,  however,  a 
reduction  of  the  through  rate  by  the  defendant  carried  with  it 
a  corresponding  reduction  of  the  intermediate  rate  the  result 
to  the  defendant  w^ould  be  too  serious  to  permit  of  unreason- 
able action. 

The  defendant  urges  that  it  does  not  ask  to  reduce  the  through 
rate;  it  simply  asks  to  meet  the  rate  already  in  effect.  Since 
mere  difference  in  the  length  of  the  defendant's  line  does  not 
create  substantial  dissimilarity,  we  may  assume,  for  the  present 
discussion,  that  its  line  is  no  longer  than  that  of  its  competitors. 
The  case  stands  as  it  would  if  this  defendant  had  on  the  first 
day  of  April  completed  and  opened  for  business  for  the  first  time 
the  shortest  line  between  St.  Paul  and  Duluth.  It  finds  these 
rates  in  effect.    It  has  had  no  voice  in  the  making  of  them.    It 


THE   ST.  CLOUD  CASE  307 

insists  that  they  are  unreasonably  low,  and  it  asks  to  be  allowed 
to  simply  meet  those  rates  without  reference  to  its  intermediate 
territory.  In  what  essential  respect  would  that  case  differ  from 
the  position  of  the  defendant  which  is  now  under  consideration  ? 
We  repeat  what  has  been  already  affirmed  ;  this  question  cannot 
be  determined  as  of  any  particular  moment,  but  must  be  con- 
sidered as  a  continuing  condition.  When  this  defendant  comes 
into  this  field  of  competition,  whether  it  be  as  the  long  line  or  as 
the  short  line,  it  comes  subject  to  the  same  limitation  as  every 
other  competitor. 

Counsel  for  the  defendant  in  his  argument  puts  the  two 
propositions  together,  namely  the  length  of  line  and  the  mere 
meeting  of  the  rate,  as  though  the  long  line  might  simply  meet 
the  rate  of  its  competitor  while  the  short  line  could  not  do  so. 
This  involves  a  further  suggestion  that  the  long  line  has  not  the 
same  voice  in  the  determination  of  the  rate  as  the  short  line. 
Such  is  not  our  observation  as  applied  to  circumstances  like  the 
present.  Upon  the  contrary,  the  long  line  is  much  more  likely 
to  become  a  disturbing  factor  in  rate  situations  than  the  short 
line.  It  is  the  circuitous  route,  in  its  struggle  for  business, 
which  is  most  apt  to  reduce  the  published  rate  or  to  secretly  de- 
part from  the  open  rate,  thereby  forcing  reductions  by  the  short 
line  in  its  open  tariffs.  This  defendant  has  been  carrying  73 
car  loads  of  flour  between  these  points,  as  against  more  than 
1000  per  month  by  each  of  its  competitors.  It  will  hardly  rest 
permanently  satisfied  with  that  division  of  traffic.  If  its  pres- 
ent traffic  manager  is  disposed  to  do  so,  he  is  quite  likely  to  be 
succeeded  by  some  one  who  will  not.  It  is  not  intended  to  sug- 
gest that  the  defendant  will  violate  the  law  to  obtain  more  of 
this  freight,  but  all  experience  shows  that  in  this  competitive 
contest  the  presence  and  active  participation  of  the  long  line 
exercises  as  potent  an  influence  over  the  rate,  in  one  way  and 
another,  as  does  the  short  line. 

It  has  been  said  that  each  case  depends  upon  its  own  circum- 
stances. Why,  it  may  be  inquired,  if  this  is  so,  should  it  not  be 
determined  in  each  case,  as  a  controlling  circumstance,  which 
carrier  is  responsible  for  the  low  rate,  those  carriers  which  are 


308  KAILWAV   PROBLEMS 

not  hoiiii;  ponnittecl  U)  meet  such  rate  without  reference  to 
tlu'ir  inlerincdiate  territory.  Why  should  not  the  defendant 
in  this  case  he  alknved  to  meet  tlie  rate  of  its  competitors  un- 
traiiunek'd  hy  the  fourth  section  until  it  is  found  as  a  fact 
that  the  defendant  has  done  something  more  than  merely  meet 
these  rates? 

The  practical  answer  to  this  would  be  that  no  such  basis  is 
a  workable  one.  It  cannot  be  satisfactorily  determined,  in  the 
great  majority  of  instances,  which  one  of  several  competitors  is 
responsible  for  a  given  reduction  or  a  given  advance  in  rates. 
The  causes  which  lead  to  rate  fluctuations  are  so  intangible, 
often  resting  upon  a  suspicion  more  or  less  well  founded,  that 
any  attempt  to  say  in  an  individual  case  what  those  causes  were 
would  ordinarily  1)e  futile.  We\have  often  had  occasion  to  ex- 
amine this  question,  but  in  no  one  instance  within  our  present 
recollection  has  it  ever  satisfactorily  appeared  which  carrier 
actually  determined  the  comjjetitive  rate. 

It  is  equally  clear  that  the  statute  never  contemplated  any 
such  basis.  To  enforce  such  a  rule  would  effectually  stifle  that 
competition  which  the  Act  to  Regulate  Commerce  took  pains  to 
secure.  If  a  carrier  could  only  reduce  its  rates  to  a  competitive 
point  at  the  expense  of  its  intermediate  territory,  while  the  com- 
petitors of  that  carrier  might  meet  the  reduction  without  cor- 
responding reductions  at  intermediate  points,  no  carrier  would 
ever  openly  reduce  such  rates. 

There  would  be  more  reason  in  the  claim  that  flagrant  or  out- 
rageous conduct  of  a  competitor  might  create  the  necessary 
disparity,  and  possibly  under  the  rule  laid  down  by  the  Supreme 
Court  instances  of  that  nature  might  arise.  This  Commission 
held  in  lie  Chicago,  St.  P.  ^  K.  C.  R.  Co.,  2  I.  C.  C.  Rep.  231, 
2  Inters.  Com.  Rep.  137,  that  the  mere  unreasonable  reduction 
of  a  competitive  rate  at  the  more  distant  point  would  not  have 
this  effect.  However  this  may  be,  it  is  enough  to  say  that  in  the 
case  under  consideration  there  is  no  element  of  that  sort.  These 
four  lines  are  all  fairly  competing  for  this  traffic.  No  one  has 
Vjeen  guilty  of  any  improper  conduct  in  the  establishment  of  the 
rate  or  in  its  methods  of  obtaining  business. 


THE   ST.  CLOUD   CASE  309 

It  should  be  carefully  noted  that  there  are  no  special  circum- 
stances or  conditions  involved  in  this  case.  St.  Cloud  is  no  far- 
ther from  Duluth  by  the  line  of  the  defendant  than  is  St.  Paul 
by  the  more  direct  lines.  The  traffic  from  St.  Cloud  and  St. 
Paul  is  of  the  same  character.  There  is  nothing  peculiar  in  the 
movement  of  that  traffic.  The  attitude  of  the  different  competi- 
tors of  the  defendant,  or  of  all  those  competitors  taken  together, 
is,  so  far  as  appears,  perfectly  fair.  No  reason  can  be  assigned 
for  permitting  this  defendant  to  disregard  the  fourth  section  in 
the  handling  of  this  competitive  traffic  which  is  not  equally  ap- 
plicable to  each  of  its  competitors.  If  the  fourth  section  may 
be  disregarded  in  case  of  this  railway  competition,  it  is  difficult 
to  imagine  a  competitive  condition  in  which  it  might  not  be 
equally  disregarded. 

The  defendant  suggests  that,  if  the  other  competing  lines  be- 
tween St.  Paul  and  Duluth  were  to  imitate  its  course  by  making 
the  higher  rate  to  and  from  the  intermediate  point,  the  discrim- 
ination against  St.  Cloud  would  thereby  be  removed,  for  the 
reason  that  Princeton,  Anoka  and  Elk  River,  which  now  enjoy 
lower  rates,  would  then  be  given  substantially  the  same  rate 
which  St.  Cloud  now  has.  That  might  in  point  of  fact  remove 
the  discriminations  as  to  St.  Cloud  considered  in  reference  to 
these  three  stations,  but  would  it  not  create  a  discrimination 
against  those  stations  in  favor  of  more  favored  localities?  Such 
a  reduction  of  rates  would  reduce  the  price  of  wheat  at  Piince- 
ton  6  cents  a  bushel,  and  would  correspondingly  reduce  the 
value  of  land  tributary  to  Princeton.  The  same  would  be  tiaie 
of  all  intermediate  territory  between  Minneapolis  and  Duluth. 
Wheat  lands  in  the  vicinity  of  Minneapolis,  or  even  farther  west 
than  that  city,  would  be  worth  more  than  those  through  which 
the  products  of  these  lands  must  pass  upon  their  way  to  market. 

The  fact  that  whatever  rule  is  applied  to  this  defendant  must 
be  applied  to  its  competitors  has  undoubtedly  influenced  us 
largely  in  the  determination  of  this  question.  The  three  sliorter 
lines  now  observe  tl)e  rule  of  the  fourth  section,  but  they  cannot 
be  required  or  expected  to  do  so  if  this  defendant  is  permitted 
to  disregard  it.    To  allow  all  these  lines  to  adopt  the  course  now 


;;i()  l;.\lL\^.\^    I'Kor.i.iCMS 

jmrsiied  l>v  this  di'ti'iulaiit  would  be  to  create  discrimination 
not  now  existing  against  all  intermediate  territory  between 
St.  P;iul  and  Duluth.  It  would  be  to  remove  the  main  protec- 
tion atjainst  exorbitant  and  discriminating  interstate  rates  which 
that  territory  now  has. 

This  defendant  carries  an  insignificant  amount  of  through 
business,  and  must  derive  therefrom  an  insignificant  benefit. 
In  order  to  obtain  this  benefit  it  introduces  a  practice  which 
may  demoralize  the  rate  situation  in  that  whole  territory.  We 
do  not  think,  having  due  regard  to  its  interest,  as  well  as  the 
interest  of  the  public,  that  this  ought  to  be  permitted. 

The  other  competing  lines,  aside  from  this  defendant,  observe 
the  rule  of  the  fourth  section.  When,  therefore,  the  through 
rate  is  reduced,  this  operates  to  reduce  the  rate  at  points  like 
Princeton,  Anoka  and  Elk  River,  which  are  in  competition  with 
St.  Cloud.  To  the  extent,  therefore,  that  this  defendant  is  di- 
rectly or  indirectly  responsible  for  the  through  rate,  it  is  respon- 
sible for  the  discrimination  against  St.  Cloud.  The  defendant 
by  becoming  a  competitor  for  this  through  traffic  has  put  itself 
in  a  position  where  it  may  control,  and  must,  under  ordinaiy 
circumstances,  be  held  to  control,  the  through  rate  equally  with 
other  competing  lines.  This  being  so,  it  must  observe,  in  the 
carrying  of  this  competitive  traffic,  the  rule  of  the  fourth  section 
with  reference  to  its  intermediate  stations,  as  do  its  rivals. 

In  both  those  cases  (Dallas  and  Savannah  Freight  Bureau) ^ 
no  prejudice  against  the  intermediate  point  was  shown.  In  this 
case  such  prejudice  does  appear.  Upon  a  view  of  the  whole  situ- 
ation, it  is  our  conclusion  that  the  defendant  carries  this  busi- 
ness fiom  and  to  St.  Paul,  Minneapolis,  Anoka  and  Elk  River 
"  under  substantially  similar  circumstances  and  conditions  "  as 
exist  in  case  of  business  to  and  from  St.  Cloud,  and  that  the 
higher  rates  to  St.  Cloud  are  in  violation  of  the  fourth  section. 

It  is  said  that  the  rate  from  St.  Cloud  is  reasonable  in  and  of 
itself.  A  rate  can  seldom  be  considered  "  in  and  of  itself."  It 
must  be  taken  almost  invariably  in  relation  to  and  in  connection 
1  Cf.  p.  814,  infra. 


THE   8T.  CLOUD  CASE  311 

with  other  rates.  The  freight  rates  of  this  country,  both  upon 
different  commodities  and  between  different  localities,  are  largely 
interdependent,  and  it  is  the  fact  that  they  do  not  bear  a  proper 
relation  to  one  another,  rather  than  the  fact  that  they  are  abso- 
lutely either  too  low  or  too  high,  which  most  often  gives  occa- 
sion for  complaint,  and  which  is  the  ground  of  complaint  here. 
A  rate  of  12  cents  per  hundred  pounds  on  flour  from  St.  Cloud 
to  Duluth  may  be  reasonable  when  compared  with  a  similar  rate 
from  Minneapolis.  When  compared  with  a  rate  of  5i  cents  from 
the  latter  place,  it  is  certiiinly  prima  facie  grossly  unreasonable. 
Minneapolis  and  St.  Cloud  are  competitors  in  the  milling  business, 
and  when  this  defendant  charges  the  St.  Cloud  miller  12  cents 
per  hundred  pounds  for  transporting  his  flour  from  St.  Cloud  to 
Duluth,  while  it  charges  the  Minneapolis  miller  but  5^  cents  for 
identically  the  same  service  plus  an  additional  haul  of  60  miles, 
it  is  guilty  of  a  discrimination  against  the  St.  Cloud  shipper, 
which  is  not  justified  by  the  circumstances  of  this  case. 

It  should  be  noticed,  moreover,  that  there  is  nothing  in  the 
record  to  show  that  the  rate  of  211  cents  on  flour  from  St.  Paul 
to  New  York  is  an  unreasonably  low  one,  or  that  a  similar  rate 
applied  to  St.  Cloud  would  be  unreasonably  low.  It  is  certainly 
astonishing  that  so  great  a  service  can  be  rendered  for  so  small 
a  sum,  but,  in  comparison  with  similar  rates  at  the  same  time 
prevailing  in  other  parts  of  the  country,  this  one  can  hardly  be 
classed  as  extraordinary.  The  defendant  compares  its  rates  from 
St.  Cloud  to  Duluth  and  Superior  with  the  distance  tariffs  of 
various  States  and  of  various  railroad  companies,  and  asserts 
from  this  comparison  that  they  are  unduly  low;  but  this  is  hardly 
the  proper  standard  by  which  to  estimate  the  rates  of  the  defend- 
ant in  question.  The  distance  tariffs  referred  to  are  sti'ictly  local 
tariffs.  This  rate  under  consideration  is  in  effect  a  division  of 
the  through  rate  from  St.  Cloud  to  New  York,  for  this  defendant 
cannot  treat  traflic  from  St.  Paul  to  New  York  as  through,  and 
that  from  St.  Cloud  to  New  York  as  local.  Cincinnati,  JY.  0.  ^ 
T.  P.  li.  Co.  V.  Interstate  Commerce  Commission,  162  U.  S.  184, 
40  L.  ed.  935,  5  Inters.  Com.  Rep.  391,  16  Sup.  Ct.  Rep.  700. 
While  12  cents  may  be  an  extravagantly  low  local  rate  as  applied 


ni'J  1{ A  11. WAV    PROBLEMS 

to  the  (UsUinoe  and  trallic  in  question,  it  is,  when  considered  as 
a  charge  for  a  haul  of  IGO  miles  out  of  a  total  through  haul  of 
l.")0()  miles,  an  extravagantly  high  rate.  We  do  not  express,  how- 
ever, any  opinion  uj[)on  the  reasonableness  of  the  through  rate  or 
the  pro[)riety  of  the  division  which  the  defendant  receives,  since 
the  latter  question  especially  must  depend  upon  conditions  of 
which  no  information  is  afforded  by  the  testimony. 

It  has  been  urged  that  tiie  consequence  of  the  conclusion  at 
which  we  have  arrived  must  be  to  compel  the  Northern  Pacific 
Company  to  withdraw  from  this  through  business,  and  that  as  a 
result  that  compan}^  will  lose  the  ])rofit  which  might  accrue  from 
that  traflic,  without  any  benefit  whatever  to  St.  Cloud.  Should 
the  defendant  elect  to  comply  with  our  order  by  canceling  its 
through  tariffs  it  cannot  be  affirmed  that  the  community  of 
St.  Cloud  has  derived  no  advantage  from  such  action.  The 
injury  to  that  community  lies  in  the  discrimination  between  it 
and  other  localities.  That  discrimination  is  intensified  in  pro- 
portion as  the  St.  Paul  rate  is  forced  down  below  the  St.  Cloud 
rate.  As  already  remarked,  it  is  impossible  to  say  what  effect 
the  competition  of  the  Northern  Pacific  Company  might  produce 
upon  this  through  rate,  and  therefore  impossible  to  say  to  what 
extent  St.  Cloud  is  or  is  not  benefited  by  its  withdrawing  from 
that  competition. 

If  the  Northern  Pacific  withdraws  from  this  business  it  will 
certainly  lose  a  certain  amount  of  traffic.  That  traffic  is  insig- 
nificant, however,  and  it  is  handled  under  such  conditions  that 
the  profit  arising  from  it  must  be  more  insignificant  still.  More- 
over, this  traffic  goes  to  a  shorter  line  which  can  handle  it  at 
less  expense.  Wasteful  competition  by  circuitous  routes  is  to 
the  disadvantage  of  railways  as  a  whole,  certainly  of  the  country 
as  a  whole,  for  ultimately  there  must  be  some  relation  between 
rates  and  the  actual  cost  of  transportation.  What  the  Northern 
Pacific  loses  here  by  the  application  of  the  long  and  short  haul 
rule  it  probably  gains  somewhere  else  through  the  general  ob- 
servance of  that  same  rule  by  other  carriers. 

Even  if  it  were  true  that  the  defendant  did  lose  without  cor- 
responding advantage  at  other  points,  that  would  be  no  controlling 


I 


THE  8T.  CLOUD  CASE  313 

reason  against  our  conclusion.  The  application  of  a  beneficent 
general  rule  often  works  a  certain  hardsiiip  in  individual  cases. 
At  the  present  time  the  rule  of  the  fourth  section  is  observed 
except  in  certain  southern  territory  and  in  the  making  of  trans- 
continental rates.  The  a^jplication  of  that  section  for  which  the 
defendant  contends  would  permit  throughout  the  whole  country 
the  making  of  higher  rates  to  intermediate  points,  thereby  dis- 
arranging business  conditions  and  producing  endless  discrimi- 
nations which  do  not  now  exist.  We  cannot  feel  that  any  such 
application  was  intended  by  the  Act,  nor  that  it  should  be 
permitted  in  due  consideration  of  the  interests  of  all  parties 
concerned. 


XII 

RELATIVE   RATES  1 

The  Savannah  Fertilizer  Case 

Profty,  Commissioner : 

The  Savannah  Bureau  of  Freight  and  Transportation  is  an 
organization  of  the  business  men  of  Savannah,  Ga.,  having  in 
charge  the  transportation  interests  of  that  city.  Certain  fer- 
tilizer companies  located  at  Savannah  join  with  it  in  this 
complaint. 

Savannah,  Ga.,  Charleston,  S.C,  and  Wilmington,  N.C.,  are 
important  centers  for  the  distribution  of  commercial  fertilizers. 
This  complaint  refers  to  the  rates  upon  such  commodities  from 
these  three  cities  to  points  in  North  Carolina,  South  Carolina, 
Georgia,  Florida,  and  Alabama,  and  is  in  substance  that  the 
system  by  which  these  rates  are  made  is  vicious  in  principle,  and 
that  the  rates,  as  made  under  that  system,  discriminate  against 
Savannah  in  favor  of  Charleston  and  Wilmington,  and  are  in 
violation  of  the  fourth  section.  The  facts  are  not  for  the  most 
part  in  dispute,  since  they  arise  mainly  upon  the  published 
tariffs  of  the  defendants. 

While  it  will  be  unnecessary  to  refer  to  all  the  instances  cited 
in  the  pleadings  and  proofs,  two  or  three  cases  will  best  state  the 
nature  of  the  complainants'  contention.  The  rates  given  are, 
unless  otherwise  specified,  those  in  force  at  the  time  the  com- 
plaint and  answers  were  filed. 

The  Charleston  &  Savannah  Railway  extends  from  Charleston 
to  Savannah.  At  Savannah,  it  connects  with  the  Savannah, 
Florida  &  Western  Railway,  which  runs  southerly  to  Jackson- 
ville, Fla.,  and  westerly  across  the  southern  portion  of  Georgia, 

1  Decided  December  31,  1897.  Interstate  Commerce  Reports,  Vol.  VII, 
pp.  458-489.  This  case  is  compared  with  other  long-and-short-haul  contro- 
versies in  Ripley's  Railroads:  Rates  and  Regulation,  p.  224. 

314 


THE  SAVANNAH  FERTILIZER  CASE 


315 


to  the  Alabama  State  line,  where  it  connects  with  the  Alabama 
Midland  Railway  extending  to  Montgomeiy.  These  three  lines 
of  railway  are  operated  under  a  common  management  by  what 


is   known  as  the   Plant   System,   and    constitute   in  practical 
operation  but  one  line  of  railroad. 

The  distance  between  Charleston  and  Savannah  by  this  line 
is  115  miles.  Monteith,  Ga.,  is  a  station  upon  the  Charleston 
&  Savannah  Railway,  101  miles  from  Charleston.  Burroughs, 
Mcintosh,  Blackshear  and  Sparks  are  all  stations  in  the  State  of 
Georgia  upon  the  Savannah,  Florida  &  Western  Railway.  The 
rate  per  ton  of  2000  pounds  and  distance  from  Savannah  to 
these  stations  is  as  follows  : 


To 

Rate 

Distance 

Burroughs 

Mcliitosli 

Blackshear      

Waycross 

10.88 
1.10 
1.71 
1.82 

12  miles 
81      " 
87      " 
97      " 

T)!!) 


KA1I,^\A^     riJOHLEMS 


Tlu'  nite  and  distaiut'  from  Charleston  to  these  various  points 
is  as  follows: 


To 

Bate 

Distance 

Mouteith 

Savannah  

Burrouglis 

$1.74 
.80 
1.38 
1.00 
1.71 
1.82 

101  miles 

115      " 
127      " 
140      " 

Blackshear      

202      " 
212      " 

The  complainants  urge  that  a  comparison  of  the  rates  and 
distances  from  Charleston  and  Savannah  to  those  various  points 
shows  that  the  rates  are  made  without  any  reference  to  distance 
or  cost  of  transportation,  and  that  they  discriminate  against 
Savannah. 

The  defendants  insist,  upon  the  other  hand,  that  the  rate  from 
Charleston  to  Savannah  is  fixed  by  water  competition,  that  the 
rates  from  Savannah  to  all  points  upon  the  Plant  System  in 
Georgia  are  made  by  the  Georgia  Railroad  Commission,  that  the 
rates  from  Charleston  to  these  same  points  are  made  by  adding 
50  cents  to  the  Georgia  Commission  rate,  and  that  this  difference, 
in  view  of  the  low  rate  between  Charleston  and  Savannah,  is  a 
reasonable  one. 

The  rates  between  all  points  in  the  State  of  Georgia  are  fixed 
by  the  Railway  Commission  of  that  State.  The  facts  as  to  water 
competition  between  Charleston  and  Savannah  are  stated  upon 
another  branch  of  this  case. 

As  already  stated,  the  Savannah,  Florida  &  Western  Railway 
extends  from  Savannah,  Ga.,  to  Jacksonville,  Fla.  The  difference 
in  rate  between  Charleston  and  Savannah  to  all  points  upon  the 
line  of  that  railway  in  the  State  of  Georgia,  not  common  points, 
is  50  cents  in  favor  of  Savannah.  Folkston,  Ga.,  is  the  last 
station  in  that  State  and  is  distant  245  miles  from  Charleston 
and  1-30  miles  from  Savannah,and  the  rate  is  $2.20  from  Savannah 
and  82.70  from  Charleston.  Boulogne,  Fla.,  is  the  next  station 
beyond  and  5  miles  distant  from  Folkston.    At  Boulogne  the 


THE   SAYAXXAH  FERTILIZES   CASE  317 

difference  in  rate  is  but  24  cents  per  ton  in  favor  of  Savannah, 
while  at  Dinsmore,  Fla.,  30  miles  south  of  Folkston,  the  rate 
is  the  same  from  both  Charleston  and  Savannah,  viz.,  $2.30 
per  ton. 

Complainants  say  that  if  Savannah  is  entitled  to  an  advantage 
of  50  cents  in  Georgia  it  is  certainly  entitled  to  the  same  advan- 
tage in  Florida,  and  that  the  shrinkage  in  all  instances,  and  the 
entire  disappearance  in  many  instances  of  any  difference,  is  an 
unjust  discrimination  against  Savannah  in  favor  of  its  competitor 
Charleston.  The  defendant  excuses  this  by  saying  that  Jackson- 
ville is  an  important  ocean  port,  between  which  and  Charleston 
and  Savannah  the  rate  is  practically  the  same,  and  that  in  going 
south  upon  the  Savannah,  Florida  &  Western  Railway  it  is 
necessary  to  lower  the  rate  and  diminish  the  difference  as  Jack- 
sonville is  approached.  Since  the  water  rate  is  the  same  from 
both  Charleston  and  Savannah  to  Jacksonville  tile  rail  rate  must 
also  be  the  same,  or  substantially  the  same,  to  points  which  can 
be  reached  from  Jacksonville. 

We  find  that  there  is  actual  water  competition  between  Charles- 
ton and  Savannah  and  Jacksonville,  and  that  the  rates  by  water 
from  Charleston  and  Savannah  to  Jacksonville  upon  commercial 
fertilizers  are  substantially  the  same.  It  did  not  appear  how  far 
from  Jacksonville  into  the  interior  freight  could  be  transported 
upon  the  ocean  and  rail  rate  as  against  all  rail  competition  from 
Savannah.  The  rates  to  Florida  points  have  been  changed  since 
the  filing  of  the  complaint,  so  that  this  alleged  discrimination  is 
to  some  extent  removed. 

The  Savannah,  Florida  &  Western  Railway  crosses  the  Chatta- 
hoochee river  at  Saffold,  Ga.,  where  it  connects  with  the  Alabama 
Midland  Railway.  Saffold  is  the  last  station  in  the  State  of 
Georgia.  Alaga,  1  mile  beyond,  is  the  first  station  in  the  State 
of  Alabama.  The  rate  from  Charleston  via  Savannah  to  Saffold, 
distant  384  miles,  is  $3.64  ;  from  Savannah  to  Saffold,  distant 
269  miles,  $3.14,  while  the  rate  to  Alaga  from  both  Charleston 
and  Savannah  is  the  same,  $3.25.  This  is  true  of  all  the  stations 
upon  the  Alabama  Midland  Railway,  the  rate  being  the  same 
from  both  Charleston  and  Savannah.    These  rates  seem  to  have 


318  iL\ii>\\A\    rKoi;LE]\is 

been  ehaiiixcd  also  since  the  Tiling  of  the  complaint,  so  tliat  there 
is  now  a  ililViTcntial  of  20  cents  in  favor  of  Savannah  to  points 
on  the  Alabama  Midland  in  Alabama. 

Tlie  complainants  insist  that  this  equalizing  of  the  rate  between 
Charleston  and  Savannah  to  points  in  Alabama,  while  the  differ- 
ence in  distance  remains  the  same,  is  an  unjust  discrimination 
against  Savannah.  The  defendants  reply  that  all  stations  upon 
the  Alabama  Midland  Railway  between  Alaga  aud  Montgomery 
are  grouped,  and  that  the  rate  is  made  by  competition  with  other 
railway  lines  and  other  lines  partly  rail  and  partly  water,  oper- 
ating through  Montgomery;  the  rate  from  Pensacola,  Fla.,  and 
Mobile,  Ala.,  to  Montgomery  being  $1.80,  and  from  New  Orleans, 
La.,  to  Montgomery  1^3.00.  These  rates  are  correctly  stated,  but 
nothing  appears  as  to  the  cost  of  fertilizers  at  Pensacola,  Mobile 
or  New  Orleans ;  nor  did  it  appear  whether  or  not  fertilizers 
were  actually  brought  from  these  points  to  Montgomery. 

The  foregoing  illustrations  sufficiently  indicate  the  manner  in 
which  it  is  alleged  that  the  Plant  System  discriminates  by  these 
rates  against  the  city  of  Savannah  in  favor  of  Charleston ;  but 
the  complaint  goes  much  further  than  this  and  attacks,  not  merely 
the  rate  of  individual  lines,  but  the  entire  scheme  of  rate  making 
which,  it  is  alleged,  abolishes  distance  in  favor  of  Charleston  and 
Wilmington  as  against  Savannah.  The  nature  of  this  alleged 
discrimination  appears  from  the  following  examples : 

Valdosta,  Ga.,  is  situated  upon  the  Savannah,  Florida  & 
Western  Railway  158  miles  from  Savannah  and  273  miles  from 
Charleston,  and  this  is  the  direct  rail  line  between  Charleston 
and  Valdosta.  Valdosta  can,  however,  be  reached  from  Charles- 
ton by  another  line  made  up  of  the  South  Carolina  &  Georgia 
Railway  to  Augusta,  the  Georgia  Railroad  from  Augusta  to 
Macon,  and  the  Georgia  Southern  &  Florida  Railway  from  Macon 
to  Valdosta.  The  distance  by  this  route  is  413  miles  as  against 
273  miles  by  the  direct  route.  It  has  alreadj'-  been  said  that 
to  most  points  in  the  State  of  Georgia  upon  the  Plant  System 
there  exists  a  difference  in  rate  of  50  cents  between  Charleston 
and  Savannah  in  favor  of  Savannah,  but  in  the  case  of  Valdosta 
the  rate  is  the  same,  12.48,  and  this  is  for  the  reason  that  the 


THE   SAVANNAH   FERTILIZER   CASE 


319 


circuitous  line  from  Charleston  demands  and  obtains  the  right 
to  make  the  same  rate  from  Charleston  to  Valdosta  as  is  made 
from  Savannah  to  Valdosta. 

Hawkinsville,  Ga.,  is  upon  the  Southern  Railway  between 
Brunswick,  Ga.,  and  Macon.  It  is  also  connected  by  lines  of 
railway  with  both  Charleston  and  Savannah.  The  route  from 
Charleston  is  over  the  South  Carolina  &;  Georgia  tO  Augusta, 
the  Augusta  Southern  to  Tennille,  the  Wrightsville  &  Tennille 
to  Dublin,  and  the  Oconee  &  Western  from  Dublin  to  Hawkins- 
ville, a  distance  of  297  miles.  The  line  between  Savannah  and 
Hawkinsville  is  by  the  Central  of  Georgia  Railway  to  Tennille, 
the  Wrightsville  &  Tennille  to  Dublin,  and  the  Oconee  & 
Western  from  Dublin  to  Hawkinsville,  being  the  same  route 
from  Tennille.  The  rate  from  all  three  points  is  the  same, 
although  the  distances  are  from  Brunswick  160  miles.  Savannah 
211  miles,  and  Charleston  297  miles. 

The  complainants  have  referred  to  several  instances  as  show- 
ing this  kind  of  discrimination  in  favor  especially  of  Charles- 
ton and  Wilmington  as  appears  from  the  following  tables.  By 
"one  line"  is  meant  one  continuous  line  operated  by  one  com- 
pany, and  by  "  two  or  more  lines,"  that  the  line  betw^een  the 
points  named  is  made  up  of  two  or  more  independent  roads. 


To  Tennille,  Ga. 


From 

Distance 

Lines 

Savannah   

134  miles 
221       " 
354      " 

1 

Charleston 

Wilmington 

2 
3 

Rate  .$2.31  per  ton. 
To  Denmark,  S.C. 

Savannah   

Charleston 

Wilmington 

90  miles 
81      " 
213      " 

1 
1 
1 

Rate  S2.G0  per  ton. 


;>'j(i 


1;A1L\\A\'    I'Kor.LEMS 
To  Coi.uMiu's,  Ga.i 


Fkom 

Distance 

Lines 

Savannah   

Ciiarloston 

Wilmington 

291  miles 
389      " 
553      " 

1 
4 
2 

Rate  $3.14  per  ton. 


To  Troy,  Ala.i 


Savannah  . 

Charleston 
Wilmington 


360  miles 
475      " 

687      " 


Rate  $3.50  per  ton. 


To  Montgomery,  Ala.^ 


Savannah   

Charleston 

Wilmington 

340  miles 
527      " 
611      " 

1 
1 
2 

Rate  $3.00  per  ton. 

The  complainants  say  that  these  tables  show  that  the  rates 
complained  of  are  made  without  any  consistency,  without  any 
reference  to  distance,  and  that  they  uniformly  discriminate 
against  Savannah  by  admitting  Charleston  and  Wilmington 
upon  equal  terms  into  that  territory  which  is  naturally  tribu- 
tary to  Savannah. 

The  defendants  do  not  deny  that  the  rates  are  made  upon  the 
principle  complained  of,  but  they  say  that  the  principle  is  just, 
advantageous  to  the  various  localities  which  thereby  enjoy  the 
benefit  of  the  competition,  and  that,  whatever  objection  there 
may  be  to  it,  it  is  the  only  system  which  is  possible  under  the 
peculiar  circumstances  which  exist  in  this  southern  territory. 


1  Cf.  map,  p.  154,  supra. 


THE  SAVANNAH  FERTILIZER  CASE  321 

Exactly  what  this  system  is,  and  exactly  the  points  of  difference 
between  the  claims  of  the  complainants  and  the  defendants  is 
well  indicated  by  a  graphic  illustration  produced  upon  the  trial 
by  counsel  for  the  defendants,  which  was  made  an  exhibit  and 
is  reproduced  here. 

Referring  to  the  above  outline,  Wilmington,  Charleston,  Sa- 
vannah and  Brunswick  are  four  points  upon  the  seacoast.  A, 
B,  C,  and  D  are  four  interior  points.    The  heavy  lines  represent 


—  WILMlf/aTOAT 


B  ^ r ^^ 7 T^CHARLE^TON- 


'^AVA^fJ>/AH 


/. 


\ 


V  ^^^^ -=^3RV/Y*SWIC1C 

lines  of  railway  connecting  each  one  of  these  ocean  ports  with 
the  corresponding  interior  point,  and  designate  the  shortest  line 
of  railway  between  such  points.  The  dotted  lines  represent 
lines  of  railway  between  the  several  ocean  ports  and  the  interior 
points.  Now,  the  complainants  insist  that  the  lowest  rate  should 
in  all  cases  be  made  upon  the  shortest  line  ;  that  is,  Wilmington 
should  have  the  lowest  rate  to  A,  Charleston  to  B,  Savannah 
to  C,  and  Brunswick  to  D.  The  defendants  insist  that  when 
the  rate  has  been  made  over  the  short  line,  as  from  Savannah  to 
C,  then  Wilmington,  Charleston  and  Brunswick  are  all  entitled 


:\'2'2  HAII.W  A\     I'KOr.LEiMS 

to  the  samo  rate  to  (',  although  tlie  lines  of  communication  are 
much  longor. 

To  state  the  jnopo.sitiou  with  reference  to  some  of  the  points 
actually  in  evidence  in  this  case.  Valclosta  is  158  miles  from 
Savannah  bv  the  Savannah,  Florida  &  Western  Railway.  The 
rate  upon  fertilizers  from  Savannah  to  Valdosta  is  fixed  by  the 
Georgia  Railway  Commission.  Now,  the  defendants  say  that 
when  this  rate  is  once  fixed,  if  Charleston  can  reach  the  same 
point  by  a  longer  line,  it  is  entitled  to  do  so  at  the  same  rate, 
although  that  line  is  413  miles  in  length  and  composed  of  three 
independent  railroads  as  against  158  miles  over  one  railroad. 

So  in  the  case  of  Hawkinsville.  This  station  is  situated  upon 
the  Southern  Railway  between  Brunswick  and  Macon.  The 
rate  from  Brunswick  is  fixed  by  the  Georgia  Commission.  Now, 
when  that  rate  has  been  determined,  Charleston  and  Savannah, 
or  rather  the  lines  leading  from  Charleston,  Savannah  and  Wil- 
mington, insist  that  they  are  entitled  to  the  same  rate,  although 
the  distance  from  Brunswick  to  Hawkinsville  is  but  161  miles 
over  one  line  as  against  211  miles  from  Savannah  over  two  lines, 
297  miles  from  Charleston  over  four  lines,  and  430  miles  from 
Wilmington  over  five  lines. 

It  appears  from  the  testimony  that  there  are  in  the  States  of 
Kentucky,  Virginia,  Tennessee,  Mississippi,  Alabama,  Georgia, 
Louisiana,  North  Carolina,  South  Carolina  and  Florida,  148  of 
these  points  to  which  the  rates  on  fertilizers  from  Charleston, 
Savannah,  Brunswick  and  Jacksonville  are  the  same.  The  illus- 
trations given  in  these  findings  of  fact  all  show  that  Savannah 
loses  the  benefit  of  the  less  distance.  There  must  be  many  of 
these  common  points  to  which  the  distance  from  Savannah  is 
greater  than  from  Charleston  and  in  respect  of  which  Savannah 
has  the  advantage  over  Charleston.  No  attempt  has  been  made, 
however,  ui)on  the  part  of  the  defendants  to  show  what  these 
points  are,  nor  whether,  on  the  whole.  Savannah  is  at  an  advan- 
tage or  disadvantage  under  this  system  of  rate  making.  Upon  the 
other  hand,  the  defendants  claim  that  this  is  entirely  immaterial, 
that  these  points  have  the  right  to  the  common  rate  provided 
that  the  primary,  or  determinative  rate,  which  is  usually  the 


THE    SAYAXNAH  FEETILIZER   CASE  323 

short-distance  rate,  is  properly  made  ;  and  provided  further  that 
the  long  line  can  carry  without  loss  at  that  rate. 

We  are  unable  to  find  that  the  short-distance  rate  in  any  case 
called  to  our  attention  discriminates  against  Savannah.  In  most 
cases  that  rate  is  the  one  made  by  the  Railroad  Commission  of 
either  Georgia  or  South  Carolina.  Neither  can  we  find  from 
the  testimony  that  the  long  line  in  any  case  carries  at  a  loss. 
Although  the  rate  per  ton  per  mile  in  some  instances  is  low, 
the  testimony  of  the  defendants  tends  to  prove  that  it  is  a  remu- 
nerative rate,  and  there  is  nothing  to  show  the  contrary. 

It  does  not  appear  that  the  Southern  Railway  &  Steamship 
Association  originated  this  system  of  "  common  points,"  but 
that  it  found  the  same  already  in  existence  and  adopted  it.  For 
a  long  time  Brunswick,  Savannah,  Port  Royal  and  Charleston 
have  entered  upon  equal  terms  this  common-point  territory. 
Wilmington  did  not  formerly,  but  the  lines  leading  from  that 
city  strenuously  insisted  upon  their  right  to  participate  in  the 
same  rates,  and  in  many  instances  exacted  that  right.  Finally 
that  question  was  submitted  to  the  Board  ^  of  Arbitration  of 
the  Southern  Railwa}^  &  Steamship  Association,  and  that  Board 
published  its  award  April  29,  1805,  by  which  it  was  decided 
that  the  rates  should  be  the  same  from  Wilmington  as  from  other 
South  Atlantic  ports  to  all  points  in  this  territory,  excepting 
those  upon  and  south  of  the  Savannah  &  Western  extension  of 
the  Central  Railroad  of  Georgia  from  Savannah  to  Lyons  and 
the  Georgia  &  Alabama  Railway  in  the  State  of  Georgia.  This 
award  was  accepted  by  the  various  lines  interested  and  has  since 
been  acquiesced  in. 

The  complainants  put  in  evidence  upon  the  trial  certain  tables 
of  rates  and  distances  which  they  claim  show  a  discrimination 
against  Savannah  and  in  favor  of  Charleston.  The  first  of  these 
consists  of  two  sets  of  tables,  each  made  up  of  33  stations.  In 
the  first  set  the  stations  selected  are  in  the  States  of  Georgia 
and  Florida,  and  the  tables  show  the  distance,  the  rate  per 
ton,  and  the  rate  per  ton  ])er  mile  from  both  Savannali  and 
Charleston. 

1  Vide,  p.  144,  supra. 


32-1  K.\1T.WAV  IMlor.LEMS 

Tliese  avorauft's  are  : 


From 

Distance 

Rate  per  Ton 

Rate  per  Ton 
PER  Mile 

Savannah  .... 
Charleston      .     .     . 

190  miles 

284      " 

$2.47 
2.79 

$.013 
.0098 

The  second  set  is  made  up  of  33  stations  in  the  States  of 
North  Carolina  and  South  Carolina.  The  facts  shown  are  the 
same  and  the  averages  are : 


From 

Distance 

Rate  per  Ton 

Rate  per  Ton 
PER  Mile 

Savannah  .... 
Charleston     .     .     . 

176  miles 
116      " 

$2.87 
2.21 

$.0163 
.0191 

The  complainants  introduced  another  table  made  up  of  74 
stations,  no  one  of  which  appears  in  the  tables  last  referred  to. 
These  stations  are  situated  in  the  States  of  Georgia,  Alabama, 
Florida,  and  South  Carolina.  The  average  distance,  rate  per 
ton,  and  rate  per  ton  per  mile  from  Savannah  and  Charleston 
are  as  follows : 


From 

Distance 

Rate  per  Ton 

Rate  per  Ton 
PER  Mile 

Savannah  .... 
Charleston     .     .     . 

156  miles 
252      " 

$2.25 
2.50 

$.02079 
.01244 

It  may  be  observed  in  this  connection  that  according  to  the 
testimony  of  the  defendants  only  10  per  cent  of  the  fertilizer 
and  fertilizer  rock  carried  to  Valdosta  during  the  year  1896 
went  by  the  Plant  System.  Assuming  that  the  Plant  System 
carried  nothing  from  Charleston,  this  would  mean  that  nine 
tenths  of  the  fertilizer  used  in  Valdosta  was  transported  413 
miles  instead  of  158  miles. 


THE  SAVAJ^NAH  FERTILIZER  CASE 


325 


The  complaint  incidentally  charges  that  in  the  application 
of  this  system  the  carriers  charge  less  for  the  longer  haul  to  the 
competitive  point  than  they  charge  to  intermediate  points  upon 
the  same  line.  There  seems  to  be  a  difference  between  a  "  com- 
mon point,"  which  is  a  point  reached  by  two  or  more  lines,  and 
a  "  base  point,"  which  is  a  point  at  which  competition  has  forced 
down  the  rates  below  those  upon  either  side  of  it.  The  defend- 
ants admit  that  the  rate  is  in  many  cases  lower  to  the  basing  point 
than  to  intermediate  points,  and  the  complainants  have  called 
our  attention  specifically  to  the  following  instances  in  which  the 
greater  charge  is  made  to  the  nearer  point,  when  the  transporta- 
tion is  over  the  same  line,  in  the  same  direction  at  the  same  time. 

1.  The  Charleston  &  Savannah  Railway  connects  Charleston 
and  Savannah.  Going  south  from  Charleston  the  rate  to  Mon- 
teith,  Ga.,  is  $1.74  and  the  distance  101  miles,  while  the  rate 
to  Savannah,  14  miles  further,  is  $.80  per  ton.  So  going  from 
Savannah  north  towards  Charleston  the  rates  and  distances  to 
intermediate  points  are  (cf.  map,  p.  315,  sujjra): 


To 

Kate 

DlSTAXfE 

Hardeeville 

Yemassee 

Jacksonboro    

Drayton 

§1.20 

1.50 

1.70 

2.00 

.80 

24  miles 
54      " 
78      " 
103      " 

Charleston 

115      " 

The  respondent  Charleston  &  Savannah  Railway  Company 
alleges  that  these  rates  are  justified  by  water  competition  between 
Charleston  and  Savannah.  We  find  that  there  is  such  water 
competition  which  is  of  controlling  force,  and  that  the  respond- 
ent could  not,  as  against  this  competition,  charge  more  than  $.80 
per  ton,  while  the  rates  to  intermediate  points  are  substantially 
those  fixed  by  the  Railroad  Commissions  of  Georgia  and  South 
Carolina.  That  the  rates  are  not  exactly  the  same  going  north 
as  going  south  for  the  same  distance  is  accounted  for  by  the 
fact  that  the  South  Carolina  Commission  allows  a  higher  rate 
upon  fertilizers  than  the  Georgia  Commission. 


;-jc. 


I;.\ll,^VA^    I'K'or.LKMS 


-.  Tin-  Cluirlrston  iV  Savannah  l\ail\vay  is  the  direct  line 
lu'twi'iMi  those  two  (.'ities,  but  theie  is  another  somewhat  longer 
line  made  up  of  the  South  Carolina  &  (ieorgia  Railroad  i'rora 
C'lKulesion  to  Denmark,  and  the  Florida  Central  &  Peninsular 
Uailroad  frou)  Deiunaik  to  Savainiah.  These  two  defendants 
make  a  joint  rate  between  Charleston  and  Savannah  of  -f  .80,  the 
distanee  being  171  miles.  Kineon,  JNIeinhard  and  Wheat  Hill 
are  all  stations  upon  the  Florida  Central  &  Peninsular  Railroad 
in  the  State  of  (Jeorgia,  distant  from  Charleston  respectively 
153  miles,  101  miles  and  107  miles,  and  the  rate  is  in  each 
case  ''j:2.30  per  ton. 

We  have  already  found  that  water  competition  between 
Charleston  and  Savannah  necessitates  the  rate  of  $.80.  The 
rate  of  •'^2.30  to  the  intermediate  points  above  referred  to  does 
not  exceed  tliat  allowed  by  tlie  State  Commissions  of  Georgia 
and  South  Carolina. 


4.  As  already  stated,  the  long  line  between  Charleston  and 
Valdosta  is  composed  of  the  South  Carolina  &  Georgia  Railroad 
from  Charleston  to  Augusta,  the  Georgia  Railroad  from  Augusta 
to  Macon  and  the  Georgia  Southern  &  Florida  Railway  from 
Macon  to  Valdosta.  These  lines  make  a  joint  rate  from  Charles- 
ton to  Valdosta  of  !|2.48. 

Thomson,  Maytield  and  Haddocks  are  stations  upon  the 
Georgia  Railroad  between  Augusta  and  Macon.  The  South 
Carolina  &  Georgfia  Railroad  and  the  Georfjia  Railroad  make 
the  following  joint  rates  for  the  following  distances  to  those 
points  : 


To 

Rate 

Distance 

Thomson 

Mayfield 

§2.64 
2.64 
2.64 
2.64 

175  miles 

198       " 

Haddocks 

244      " 

Macon 

268      " 

Kathleen,  Sycamore,  Tifton  and   Sparks   are   stations  upon 
the  Georgia  Southern  &  Florida  Railway  between  Macon  and 


THE  SAVANKAH  FERTILIZER  CASE 


327 


Valdosta.  The  South  Carolina  &  Georgia  Railroad,  the  Georgia 
Railroad  and  the  Geoigia  Southern  &  Florida  Railway  make 
joint  rates  from  Charleston  to  these  stations  as  follows: 


Rate 


Distance 


Kathleen 
Sycamore 
Tifton    . 
Sparks  . 
Valdosta 


$3.32 
2.83 
2.53 

2.87 
2.48 


288  miles 
349      " 
367      " 
388      " 
413      " 


Of  the  above  stations,  Thomson,  Mayfield,  Haddocks,  Kath- 
leen, Sycamore  and  Sparks  are  noncompetitive  stations,  while 
Macon,  Tifton  and  Valdosta  are  competitive  points. 

The  defendants  allege  that  the  low  rates  at  these  competitive 
points  are  forced  by  railway  competition,  and  that  the  rates  to 
intermediate  points  are  reasonable  in  and  of  themselves.  We 
find  that  there  is  railway  competition  at  the  above-named  com- 
petitive points,  which  undoubtedly  occasions  the  low  rates.  That 
competition  does  not  necessitate  the  low  rates,  except  that  it 
induces  a  number  of  carriers,  all  of  whom  are  subject  to  the  Act 
to  Regulate  Commerce,  to  fix  them  by  voluntary  agreement. 
The  rates  to  intermediate  points  are  not  greater  than  those 
allowed  by  the  State  Raili'oad  Commissions  of  Georgia  and 
South  Carolina,  and  in  this  sense  they  are  reasonable  "■  in  and 
of  themselves."  The  making  of  the  lower  rate  to  the  more 
distant  competitive  point  introduces,  we  think,  a  new  element, 
and  we  are  not  prepared  to  find  affirmatively  that  the  higher 
intermediate  rates  in  comparison  with  the  lower  competitive 
rates  are  reasonable  either  as  matter  of  law  or  as  matter  of  fact. 

5.  The  line  from  Charleston  to  Hawkinsville  is  made  up  of 
the  Soutii  Carolina  &  Georgia  Railway  to  Augusta,  the  Augusta 
Southern  from  Augusta  to  Tennille,  the  Wrightsville  &  Tennillc 
from  Tennille  to  Dublin  and  the  Oconee  &  Western  from  Dublin 
to  Hawkinsville.  The  line  from  Savannah  to  Hawkinsville  is 
composed  of  the  Central  of  Georgia  Railway  from  Savannah  to 
Tennille,  the  Wrightsville  &  Tennille  from  Tennille  to  Dublin 


328 


KAILWAV    TROBLEMS 


ami  the  (Oconee  »S:  Western  from  Dublin  to  Hawkinsville,  being 
the  same  line  from  Savannah  to  Hawkinsville  and  from  Charles- 
ton to  Hawkinsville  both  make  a  joint  rate  from  those  two  cities 
to  Hawkinsville  of  f 2.53. 

Heph/.ibah,  Matthews  and  Warthen  are  upon  the  line  of  the 
Auffusta  Southern.  The  Aufjusta  Southern  and  the  South 
Carolina  &  Georgia  maintain  the  following  rates  from  Charles- 
ton to  these  stations : 


To 

Rate 

Distance 

Hephzibah 

Matthews 

$2.94 
3.10 

2.87 

153  miles 
169      " 

Warthen 

208      " 

Wrightsville  is  upon  the  Wrightsville  &  Tennille  Railroad 
between  Tennille  and  Dublin.  The  South  Carolina  &  Georgia 
Railroad,  the  Augusta  Southern  Railroad  and  the  Wrightsville  & 
Tennille  Railroad  make  the  following  joint  rates  from  Charleston: 


To 

Rate 

Distance 

Wrightsville 

Dublin 

12.92 
3.12 

238  miles 
257      " 

Dexter  is  upon  the  Oconee  &  Western  Railway  between  Dub- 
lin and  Hawkinsville.  The  South  Carolina  &  Georgia  Railroad, 
the  Augusta  Southern  Railroad,  the  Wrightsville  &  Tennille 
Railroad  and  the  Oconee  &  Western  Railway  maintain  the  fol- 
lowing joint  rates  from  Charleston: 


To 

Rate 

Distance 

Dexter 

$3.10 
2.53 

270  miles 

Hawkinsville 

297      " 

The  rate   from   Savannah  to   Tennille   over  the   Central  of 
Georgia  Railway  is  -12.31  and  the  distance  134  miles.    Between 


THE   SAYAXNAH  FEETILIZER  CASE  329 

Tennille  and  Hawkinsville  and  to  Hawkinsville  the  Central  of 
Georgia  Railway,  the  Wrightsville  &  Tennille  Railway  and  the 
Oconee  &  Western  Railway  maintain  the  same  rates  as  above 
stated. 

The  defendants  named  in  this  paragraph  offer  the  same  justifi- 
cation as  stated  in  the  preceding  paragraph,  viz.,  that  Hawkins- 
ville is  a  competitive  point  and  that  the  rates  to  the  intermediate 
stations  named  are  reasonable. 

We  find  that  Hawkinsville  is  a  competitive  point,  and  that  the 
rate  from  Brunswick  to  Hawkinsville  is  fixed  by  the  Georgia 
Commission.  Our  finding  as  to  the  rates  to  the  intermediate 
stations  is  the  same  as  that  in  paragraph  four. 

Upon  these  findings  to  what  relief,  if  any,  are  the  complain- 
ants entitled? 

The  underlying  cause  of  complaint  is  the  system  upon  which 
these  rates  are  made,  and  the  most  important  question  is  whether 
that  system  is  in  violation  of  the  Interstate  Commerce  Act  in 
the  respect  complained  of,  and  if  so,  whether  the  Commission 
has  power  to  correct  such  violation. 

The  position  of  the  complainants  seems  to  be  that  certain 
territory  is  tributary  to  the  city  of  Savannah  and  that. Charleston 
must  not  be  allowed  to  enter  this  territory  upon  equal  terms  as 
to  freight  rates.  This  really  amounts  to  saying  that  the  rate 
should  be  determined  by  the  distance.  It  has  often  been  said 
that  distance  is  an  important  element  in  the  making  of  rates, 
and  it  has  been  held  that  a  carrier  would  not  be  compelled  to 
disregard  distance  in  order  to  place  two  localities  upon  com- 
mercial equality.  Commercial  Club  of  Omaha  v.  Chicago,  R.  I. 
^  P.  R.  Co.,  6  I.  C.  C.  Rep.  647  ;  Cincinnati  Freight  Bureau 
V.  Cincinnati,  N.  0.  cf  T.  P.  R.  Co.,  7  I.  C.  C.  Rep.  180. 

Upon  the  other  hand,  it  often  happens  that  distance  is  alto- 
gether disregarded,  and  it  has  been  held  that  this  may  be  proper 
within  certain  limits  and  under  certain  conditions.  Imperial  Coal 
Co.  V.  Pittsburg  <f  L.  E.  R.  Co.,  2  I.  C.  C.  Rep.  618,  2  Inters.  Com. 
Rep.  436.  The  proposition  of  the  defendant  is,  however,  that  in 
this  whole  territory  distance  should  be  entirely  obliterated.   The 


:]:]{)  ]i\\\A\.\\  riioiu.KMS 

uww  fiii't  that  a  town  is  situated  at  the  junction  of  two  railroads 
oiititl"s  that  town  to  the  same  freight  rate  from  Charleston  and 
Savannah,  no  matter  wliat  the  relative  distance  may  be. 

To  put  the  question  in  a  concrete  form.  Valdosta  is  158  miles 
from  Savannah  and  413  miles  from  Charleston,  yet  the  defend- 
ants chiim  that  the  rate  from  Savannah  and  Charleston  should  be 
the  same.  It  is  found  that  only  10  per  cent  of  the  fertilizer  used 
in  Valdosta  during  the  year  1896  came  from  Savannah,  the  bal- 
ance of  it  being  brought  from  Charleston.  Assuming  that  the 
cost  of  that  article  was  the  same  at  Savannah  and  Charleston, 
this  wouhl  mean  that  nine  tenths  of  all  the  fertilizer  consumed 
in  that  vicinity  was  transported  413  miles  while  it  might  have 
been  obtained  by  transporting  it  158  miles.  Now,  the  com- 
plainants say  that  this  is  wrong ;  that  manifestly  it  costs  much 
more  to  transport  fertilizer  from  Charleston  than  from  Savannah, 
and  that  somebody  in  the  end  must  pay  for  that  species  of 
foolishness,  if  it  be  allowed  to  continue.  Upon  the  other  hand, 
the  defendants  urge  that  this  system  gives  Valdosta  the  benefit 
of  competition  in  the  markets  of  both  Charleston  and  Savannah, 
and  that  so  long  as  railroad  companies  are  operated  as  private 
enterprises  they  may  of  right  engage  in  any  legitimate  business 
which  yields  a  profit. 

Probably  the  true  solution  of  this  controversy  is  to  be  found 
in  a  mesne  between  the  contentions  of  the  two  parties.  It  can 
hardly  be  said  that  a  particular  locality  is  entitled  to  describe 
about  itself  a  circle  and  exclude  its  competitors  from  this  area. 
Neither  can  it  well  be  claimed  that  distance  ought  not  to  be  a 
factor  in  the  making  of  rates,  and  that  a  city  is  entitled  to  no 
benefit  by  reason  of  its  advantageous  position.  The  defendants 
themselves  concede  that  there  are  limits  beyond  which  this  dis- 
regard of  distance  ought  not  to  extend.  Formerly  Wilmington 
was  not  allowed  to  come  into  this  common-point  territory  for 
the  very  reason  that  the  distance  was  against  that  city.  Finally 
that  question  was  submitted  to  arbitration  and  the  arbitrators 
determined  that  Wihnington  might  come  into  certain  territory, 
but  a  line  was  established  below  which  it  could  not  go,  and  that 
ci'-y  is  to-day  excluded  from  points  south  of  this  line  solely  on 


THE   SAVANKAH  FERTILIZER  CASE  331 

account  of  distance.  However,  we  do  not  feel  called  upon  to 
decide  in  this  case  whether  the  principle  itself  is  right,  nor 
whether  the  application  of  that  principle  is  too  extensive,  for 
the  reason  that,  if  we  determine  that  there  is  a  wrong,  we  clearly 
have  no  power  to  correct  that  wrong. 

Valdosta  is  reached  by  one  line  of  railroad  from  Savannah 
and  by  an  independent  line  of  railroads  from  Charleston.  The 
rate  from  Savannah  to  Valdosta  is  fixed  by  the  Railroad  Com- 
mission of  Georgia.  If  the  railroads  constituting  the  line  from 
Charleston  to  Valdosta  see  fit  to  make  the  same  rate  from 
Charleston  as  is  made  from  Savannah  we  have  no  power  to 
order  them  not  to  do  so,  for  it  has  always  been  understood  that 
the  Commission  had  no  authority  to  fix  a  minimum  rate.  Re 
Chicago,  St.  P.  cf  K.  C.  R.  Co.,  2  I.  C.  C.  Rep.  231,  2  Inters. 
Com.  Rep.  137. 

If  some  point  is  taken  to  which  both  rates  are  interstate,  like 
Montgomery,  the  result  is  still  the  same.  Each  line  is  an  inde- 
pendent line  and  may  fix  its  own  rate  wherever  it  pleases,  and 
we  have  no  power  whatever  over  that  rate  when  established. 
It  is  manifest  that  a  wrong  like  that  complained  of  in  this  case 
could  not  be  corrected  without  authority  to  establish  both  the 
maximum  and  the  minimum  rate.  And  we  can  establish  neither. 
Interstate  Commerce  Commis.sion  v.  Cincinnati,  N.  0.  ij-  T.  P.  R. 
Co.,  167  U.  S.  479,  42  L.  ed.  243. 

But  if  the  Commission  has  no  power  to  correct  a  discrimination 
of  this  sort  where  the  rate  from  Savannah  is  made  by  one  line 
and  the  rate  from  Charleston  is  made  by  another  line,  has  it  not 
power  to  correct  it  where  the  same  line  makes  both  rates,  and 
ought  it  not  to  do  so  ?  The  Plant  System  extends  from  Charleston 
through  Savannah  to  Valdosta.  The  rate  by  that  system  from 
both  Charleston  and  Savannah  to  Valdosta  is  the  same,  although 
the  distance  from  Charleston  is  almost  twice  as  great.  Should  not 
this  apparent  wrong  to  Savannah  be  righted? 

If  this  rate  stood  alone  and  were  voluntarily  made  by  the  Plant 
System,  it  would  probably  be  a  discrimination  against  Savannah 
which  ought  to  be  corrected.  But  under  the  circumstances  it  is 
difficult  to  see  how  it  can  be  called  an  unjust  discrimination  or 


:V.V2  \l.\l\A\A\    I'lJOr.LEMS 

liow  it  works  to  tlie  injury  of  Savannah.  The  rate  from  Charles- 
ton to  N'aldosta  is  fixed  by  an  independent  line.  The  distance 
throuij^h  Savannah  is  but  275  miles  as  against  413  miles  by  that 
luie.  Unless  the  Plant  System  makes  the  same  rate  as  is  made 
by  the  circuitous  line  it  can  do  no  business  whatever.  Under 
these  circumstances  we  think  it  may  properly  meet  the  rate  from 
Charleston  which  is  made  by  the  longer  line,  and  that  it  does 
not,  in  making  and  maintaining  this  rate,  unjustly  discriminate 
against  the  city  of  Savannah.  If  the  rate  from  Charleston  to 
\''aldosta  were  in  any  way  subject  to  control,  our  judgment  might 
be  otherwise. 

The  complainants  insist  that  even  though  the  common-point 
system  of  rate  making  is  consistent,  nevertheless  the  defendants 
discriminate  unduly  against  Savannah  in  the  application  of  that 
system.  They  introduce  certain  tables  which  apparently  show 
that  Charleston  has  the  benefit  of  a  better  rate  into  the  territory 
of  Savannah  than  Savannah  has  into  the  territory  of  Charleston. 
It  is  not  clear  that  these  tables  fully  sustain  the  contention  of  the 
complainants,  since  the  average  distances  are  not  the  same  and 
the  rate  per  ton  per  mile  should  not  be  the  same  for  short  as  for 
long  distances  ;  but  assuming  that  they  do  show  that  Charleston 
has  such  an  advantage,  that  may  well  follow  from  the  system  and 
not  from  its  unfair  application.  If  the  common  points  to  which 
Savannah  and  Charleston  take  the  same  rate  are  so  located  that 
upon  the  whole  the  distance  is  less  from  Savannah  than  from 
Charleston,  then  manifestly  the  result  must  be  the  one  which  the 
complainants  say  their  tables  demonstrate.  In  other  words,  the 
vice,  if  one  is  established,  is  that  of  the  system,  and  not  of  its 
application  ;  and  we  have  already  said  that  we  cannot  correct 
that  fault. 

But  the  complainants  say  that  there  are  instances  in  which 
there  is  a  manifest  discrimination  against  Savannah  in  the  making 
of  these  rates.  For  instance,  Charleston  is  115  miles  distant  from 
Savannah.  To  all  stations  in  Georgia,  not  common  points,  a  dif- 
ference in  rate  of  50  cents  per  ton  in  favor  of  Savannah  is  made 
by  the  Plant  System.  It  is  urged  that  this  difference  is  too  little 
in  view  of  the  difference  in  distance. 


THE   SAVANNAH  FEETILIZEK   CASE  333 

To  this  we  cannot  assent.  It  is  found  that  water  competition 
between  Charleston  and  Savannah  compels  the  making  of  a  rate 
of  80  cents  per  ton  between  those  two  cities.  If  80  cents  is  a 
proper  local  rate,  50  cents  cannot  be  said  to  be  an  unfair  differ- 
ence in  the  through  rate  from  Charleston  via  Savannah  to  Geor- 
gia points.  Looking  merely  to  the  cost  of  service,  the  Plant 
System  would  probably  make  more  money  in  transporting  fer- 
tilizer from  Charleston  to  Burroughs  upon  the  through  rate  of 
$1.38  than  in  transporting  the  same  article  from  Charleston 
to  Savannah  upon  a  local  rate  of  80  cents  and  from  Savan- 
nah to  Burroughs  upon  another  local  rate  of  88  cents.  The 
Charleston-Savannah  rate  is  fixed  by  water  competition  ;  the 
Savannah-Burroughs  rate  is  fixed  by  law.  These  two  rates 
being  established,  the  through  rate  from  Charleston  to  Bur- 
roughs is  not  an  unreasonable  one. 

The  difference  in  rate  between  Charleston  and  Savannah  is 
maintained  to  all  points,  not  common  points,  in  the  State  of 
Georgia  upon  the  Plant  System,  but  when  that  line  of  railway 
crosses  the  southern  boundary  of  Georgia  and  enters  the  State 
of  Florida  this  difference  begins  to  diminish  and  finally  dis- 
appears altogether. 

If  not  in  some  way  accounted  for  this  would  be  a  manifest 
discrimination  against  Savannah ;  but  it  is  accounted  for  by  the 
fact  that  the  water  rate  on  fertilizers  from  both  Charleston  and 
Savannah  to  Jacksonville,  Fla.,  is  the  same,  and  must  accord- 
ingly be  the  same  at  all  intermediate  points  to  which  fertilizer 
can  be  brought  via  Jacksonville  by  ocean  and  rail  as  against 
the  all  rail  line.  Circumstances  over  which  the  Plant  System 
has  no  control  determine  that  the  rate  from  Charleston  and 
Savannah  to  these  points  shall  be  the  same  by  other  lines.  This 
being  so,  we  have  already  indicated  that  the  Plant  System  may 
meet  that  rate. 

Something  of  the  same  sort  occurs  upon  the  Plant  System  in 
the  State  of  Alabama.  That  system  is  operated  as  a  continuous 
line  from  Savannah  to  Montgomery,  the  portion  of  it  which 
is  in  the  State  of  Alabama  and  which  extends  from  Alajja  to 
Montgomery  being  known  as  the  Alabama  Midland  Railway  in 


334  i:ail\va\'  rKor.LioMs 

AlalKuna.  V \)on  all  stations  on  tlie  Plant  System  in  the  State  of 
Cicorgia,  not  connnon  points,  a  difference  of  50  cents  per  ton  is 
nuule  in  fiivor  of  Savannah,  but  as  soon  as  the  Alabama  State 
line  is  crossed  this  difference  disappears,  and  at  all  stations  be- 
tween Alagaand  Montgomery  the  rate  from  Charleston  and  Sa- 
vannah is  the  same.  This  was  the  case  when  the  answer  of  the 
Plant  System  was  filed,  but  at  the  date  of  the  hearing  the  rates 
had  been  revised  and  a  differential  of  20  cents  per  ton  in  favor 
of  Savannah  established.  Nothing  in  this  case  appears  to  justify 
a  different  differential  to  most  points  upon  the  Plant  System  in 
Alabama  from  Avhat  it  is  in  Georgia.  There  are  connnon  points 
upon  that  system  in  both  Georgia  and  Alabama. 

We  are  inclined  to  think  that  there  are  stations  upon  the  Plant 
System  in  Florida,  and  also  upon  the  line  of  the  Florida  C'cntral 
&,  Peninsular  Railroad  in  Florida  to  which  a  sufficient  difference 
is  not  made  in  the  rate  from  Charleston  and  Savannah,  and  that 
the  same  thing  is  probably  true  of  stations  upon  the  Alabama 
Midland  Railway  in  Alabama;  but  we  do  not  feel  that  our  in- 
formation is  sufficiently  definite  to  enable  us  to  make  any  order 
m  this  respect. 

We  are  satisfied  that  water  competition  through  Jacksonville 
justifies  the  same  rate  from  Charleston  and  Savannah  to  certain 
points  in  Florida,  but  we  do  not  know  to  what  points.  We  know 
that  competition  through  Montgomery,  and  perhaps  at  other 
points  upon  the  Alabama  Midland,  justifies  a  diminution  in  the 
difference  in  rate  between  Charleston  and  Savannah,  but  we  do 
not  know  just  how  far.  It  appears  that  changes  have  been  made 
in  these  rates  since  the  filing  of  the  complaint,  which  in  some 
cases  remove  the  ground  for  complaint.  We  think  best,  there- 
fore, not  to  attempt  to  make  any  order  in  this  particular,  but  to 
rely  upon  the  defendants  to  adjust  these  rates  in  accordance  with 
our  suggestions,  giving  the  complainants  leave  to  apply  for  an 
order  if  this  is  not  done. 

The  complaint  incidentally  charges  the  defendants  with  certain 
violations  of  the  fourth  section  and  the  findings  of  fact  state  the 
instances  which  were  called  to  our  attention  by  the  pleadings 
and  proofs. 


THE   SAVANNAH   FERTILIZER  CASE  335 

The  charging  by  the  Charleston  &  Savannah  Railway  of  higher 
rates  to  intermediate  points  between  Charleston  and  Savannah 
than  the  rate  over  the  entire  distance  between  those  cities  is  jus- 
tified by  the  existence  of  water  competition ;  and  this  is  also  true 
of  the  line  between  the  same  cities  composed  of  the  South  Caro- 
lina &  Georgia  and  the  Florida  Central  &  Peninsular  Railway 
Companies. 

In  all  other  instances  the  justification  relied  upon  is  the  exist- 
ence of  railway  competition  between  carriers  subject  to  the  Act 
to  Regulate  Commerce.  The  Commission  has  uniformly  held  up 
to  the  present  time  that  this  species  of  competition  does  not  cre- 
ate the  necessary  dissimilarity  of  circumstances  and  conditions 
under  that  section,  and  such  would  have  been  its  decision  in  this 
case  upon  the  law  as  it  was  supposed  to  be  when  the  findings  of 
fact  were  prepared.  Since  then,  however,  the  Supreme  Court  of 
the  United  States  by  its  decision  in  the  case.  Interstate  Commerce 
Commission  v.  Alabama  M.  R.  Co.  decided  November  8,  1897, 
168  U.  S.  144,  42  L.  ed.,^  has  determined  that  this  view  of  the 
law  is  erroneous,  and  that  railway  competition  may  create  such 
dissimilar  circumstances  and  conditions  as  exempt  the  carrier 
from  an  observance  of  the  long  and  short  haul  provision.  Under 
this  interpretation  of  the  law  as  applied  to  the  facts  found  in  this 
case,  we  are  of  the  opinion  that  the  charging  of  the  higher  rate 
to  the  intermediate  points,  as  set  forth,  is  not  obnoxious  to  the 
fourth  section.  The  section  declares  that  the  carrier  shall  not 
make  the  higher  charge  to  the  nearer  point  under  "  substantially 
similar  circumstances  and  conditions."  If  the  conditions  and 
circumstances  are  not  substantially  similar,  then  the  section  does 
not  apply  and  the  carrier  is  not  bound  to  regard  it  in  the  making 
of  its  tariffs.  The  court  has  decided  that  railway  competition, 
if  it  exists,  must  be  considered.  If,  therefore,  such  competition 
does  actually  control  the  rate  at  the  more  distant  point  that 
rate  is  not  made  under  the  same  circumstances  and  conditions 
as  is  the  rate  at  the  intermediate  point  and  the  higher  rate  is 
not  prohibited  by  the  fourth  section. 

\Qi.  p.  378,  infra. 


830  KAILWAV    riJOr.LEMS 

Recurring  now  to  the  lindings  of  fact,  we  see  that  in  every 
case  the  rate  by  the  k)nger  line  to  the  more  distant  point  is 
not  only  controlled  but  absolutely  lixed  by  competitive  con- 
ditions. If  the  lines  from  Charleston  to  Valdosta  have  a  right  to 
compete  at  that  point  for  traffic  in  commercial  fertilizer,  the  rate 
which  they  make  is  determined  by  competition  alone,  and  that 
rate  is  not  in  fact  made  under  the  same  circumstances  and  con- 
ditions as  are  the  rates  to  intermediate  points,  if  such  railway 
competition  is  to  be  taken  into  account.  It  is  our  opinion,  there- 
fore, that  the  higher  intermediate  rates  involved  in  this  case  are 
not  in  violation  of  the  fourth  section. 


XIII 

JOINT   THROUGH   RATES   AND   PRORATING: 
JOBBING  COMPETITION! 

Report  of  the  Commission 

Clark,  Cormnissioner : 

Complainants  are  individuals,  partnerships,  and  corporations 
engaged  in  jobbing  trade  at  Kansas  City  and  St.  Joseph,  Mo., 
and  Omaha,  Nebr.,  to  wliieh  points  they  ship  via  the  lines  of  the 
defendants  large  quantities  of  goods  from  the  Atlantic  seaboard, 
largely  under  class  rates,  and  from  which  points  they  distribute 
such  goods  throughout  a  large  territory  to  the  southwest,  west, 
and  northwest  and  also  to  a  comparatively  small  and  limited 
territory  east  of  the  Missouri  river. 

In  sale  and  distribution  of  their  goods,  complainants  come  in 
competition  with  jobbers  located  at  Minneapolis  and  St.  Paul, 
hereinafter  referred  to  as  the  Twin  Cities,  and  the  complaint 
alleges  unjust  and  unreasonable  discrimination  in  favor  of  the 
Twin  Cities  and  undue  prejudice  against  Kansas  City,  St.  Joseph, 
and  Omaha,  hereinafter  referred  to  as  the  Missouri  River  Cities, 
due  to  and  measured  by  the  difference  in  the  class  rates  from 
the  Atlantic  seaboard  to  the  Twin  Cities,  as  compared  with  hke 
rates  from  same  points  to  the  Missouri  River  Cities. 

In  testimony,  briefs,  and  argument  complainants  make  a  strong 
attack  upon  the  long-established  system  of  rate  making  under 
which  rates  to  points  west  of  the  Mississippi  river  are  made 
upon  the  basis  of  the  rates  to  the  Mississippi  river  crossings. 

^  Burnham,  Ilanna,  Munger  Co.  v.  C,  E.  I.  &  P.  Ry.,  etc.  Decided  June  24, 
1008,  by  the  Interstate  Commerce  Commission  (14  I.  C.  C.  Rep.,  299)  ;  upheld 
by  the  United  States  Supreme  Court,  1910.  The  legal  significance  of  this  case 
is  discussed  in  Ripley's  Railroads  :  Rates  and  Regulation,  p.  542.  Prorating 
will  be  treated  in  the  volume  on  Finance  and  Organization.  .Jobbing  rates  and 
commercial  competition  are  analyzed  in  the  former  volume  (see  Index). 

837 


338  1:A1I.\\A^    imioui.kms 

As  lailroiuls  wci-c  const rnctctl  into  tlic  undeveloped  West  and, 
for  a  time  at  least,  had  their  westi'rii  terniini  at  the  east  bank  of 
the  Mississippi  river,  it  seeins  natural  that  when  the  river  was 
crossed,  and  rales  were  established  to  jioints  beyond,  they  should 
be  I'onstrueted  by  adding  certain  sums  to  the  rates  already 
established  to  the  river,  and  as  additional  lines  were  built  and 
additional  railroad  crossings  over  the  Mississippi  river  were  con- 
structed, com[)etition  between  carriers  and  localities  naturally 
established  common  rates  to.  the  jNIississippi  river  crossings, 
especially  when  applied  to  traffic  going  beyt)nd. 

As  the  West  was  further  developed,  this  same  condition  and 
like  results  followed  at  the  several  crossings  of  the  Missouri 
river,  so  that  to-day  the  rates  from  the  Mississippi  river  cross- 
ings to  the  Missouri  river  crosshigs,  Kansas  City  to  Omaha,  in- 
clusive, are  the  same,  and  from  points  east,  to  the  Missouri  River 
Cities,  are  the  same  via  any  of  the  Mississippi  river  crossings, 
East  St.  Louis  to  East  Dubuque,  inclusive. 

Complaint  alleges  unreasonableness  of  the  class  rates  from  the 
Atlantic  seaboard,  and  the  defendants  named  in  the  complaint 
were  the  Chicago,  Rock  Island  e^  Pacific  Railway  Company,  the 
Chicago,  Burlington  &  Quincy  Railway  Company,  the  Chicago, 
Milwaukee  &  St.  Paul  Railway  Company,  the  Chicago  &  North- 
western Railway  Company,  and  the  Chicago  Great  Western 
Railway  Company.  All  of  these  are  carriers  whose  lines  do  not 
extend  east  of  Chicago,  and  all  of  them  have  lines  from  Chicago, 
through  the  several  i\Iississippi  river  crossings,  to  the  Missouri 
River  Cities.  The  defendants  whose  lines  are  east  of  Chicago 
were  made  defendants  upon  application  of  the  Chicago  &  North- 
western Railway  Company.  It  will,  however,  be  seen  that  the  com- 
plaint, the  testimony,  and  the  argument  are  all  against  the  rates 
charged  west  of  Chicago  and  the  Mississippi  river  crossings. 

The  Sioux  City  Commercial  Club  intervened  and  supported 
the  complainants'  request,  introducing  and  empliasizing,  however, 
the  view  that  whatever  might  be  done  for  Omaha  should  like- 
wise be  done  for  Sioux  City,  and  arguing  that  as  Sioux  City 
wa.s  also  a  Missouri  river  crossing  it  should  be  placed  upon  a 
parity  with  Omaha.    The  St.  Paul  Jobbers  and  Manufacturers' 


JOINT   THROUGH    RATES  AND   PRORATING      339 


Association,  of  St.  Paul,  and  the  Commercial  Club  of  Minne- 
apolis intervened  and  in  substance  joined  with  and  supported 
the  defendants.  The  Chicago  Association  of  Commerce  and  the 
Merchants'  Traffic  Bureau  and  the  Business  Men's  League  of 
St.  Louis  appeared  at  the  hearings  on  behalf  of  the  connnercial 
interests  of  their  respective  cities,  offered  evidence  and  were 
heard  on  brief  and  in  oral  argument  in  defense  of  the  system  of 
rate  construction  based  upon  the  Mississippi  river,  and  in  oppo- 
sition to  a  rate  adjustment  that  would  give  the  Missouri  River 
Cities  an  advantage  at  the  expense  of  Chicago  and  St.  Louis. 

Complainants  allege  that  the  class  rates  from  the  Atlantic 
seaboard,  of  which  New  York  will  be  taken  as  representative,  to 
the  Missouri  River  Cities,  to  wit,  in  cents  per  100  pounds. 


1 

3 

3 

4 

5 

147 

120 

93 

68 

57 

are  unjust  and  unreasonable ;  that  they  are  unjustly  discrimina- 
tory against  the  iNIissouri  River  Cities  as  compared  with  the 
class  rates  from  New  York  to  the  Twin  Cities,  to  wit,  in  cents 
per  100  pounds, 


1 

2 

3 

4 

5 

115 

99 

76 

53 

46 

and  they  ask  that  the  Commission  establish  from  New  York  to 
the  Missouri  River  Cities  the  following  through  class  rates  in 
cents  per  100  pounds. 


1 

2 

3 

4 

.5 

110 

95.25 

72.5 

51.5 

44 

together  with  proportionate  reductions  from  eastern  producing 
points  as  shown  in  Western  Trunk  Line  Tariff  No.  786,  I.  C.  C. 
No.  G7H,  or  such  other  I'atcs  as  niay  ])v.  found  jus(-  and  ix'asoiiablc. 


:V}0  KAILWAV  rijor.LEMS 

DetViulants,  Chicago,  Rock  Island  &  Pacific  Railway;  Chicago, 
Hurliiigton  cV:  Quiiu-y  liailway ;  Chicago,  Milwaukee  &  St.  Paul 
Railway  :  Chicago  &  Northwestern  Railway,  and  Chicago  Great 
Western  Railway  are  parties  to  the  tariff  so  referred  to.  It  con- 
tains rates  on  classes  and  commodities  from  "  Atlantic  seaboard 
and  points  west  thereof,  east  of  the  western  termini  of  the  truidv 
lines "  to  St.  Paul,  Minneapolis,  etc.,  and  the  term  "  Atlantic 
seaboard  "  is  used  herein  in  that  sense. 

Defendants  admit  the  correctness  of  the  rates  stated  in  the 
complaint,  and  the  divisions  thereof  between  the  several  carriers, 
and  the  distances  via  the  various  routes,  but  they  deny  that  such 
rates  are  unjust  and  unreasonable,  or  unjustly  discriminatory  in 
comparison  with  the  rates  to  the  Twin  Cities.  Of  the  five  origi- 
nal defendants,  the  Rock  Island,  the  Northwestern,  and  the 
Great  Western,  allege  justification  for  the  lower  rates  to  the 
Twin  Cities  on  the  ground  of  competition  by  water  as  well  as 
of  competition  via  the  Canadian  Pacific  and  the  Minneapolis, 
St.  Paul  &  Sault  Ste.  Marie  Railway,  hereinafter  referred  to  as 
the  Soo  Line. 

Of  the  numerous  complainants  only  representatives  of  the  dry 
goods  interests  appeared  to  give  evidence  at  the  hearings,  with 
the  exception  of  one  wholesale  grocer,  introduced  by  the  inter- 
venor,  Sioux  City  Commercial  Club.  The  jobbers  of  Sioux  City 
sell  goods  in  northwestern  Iowa,  southwestern  Mmnesota,  South 
Dakota,  northern  Nebraska,  and  a  part  of  Wyoming.  They  come 
into  competition  with  jobl)ers  at  Chicago,  Omaha,  the  Twin  Cities, 
and  other  intermediate  jobbmg  points,  their  strongest  competition 
being  with  Omaha  on  the  south  and  the  Twin  Cities  on  the  north. 

With  the  exception  of  North  Dakota,  western  and  northwestern 
Minnesota,  and  Canada  it  may  be  said  m  general  that  the  dry 
goods  concerns  in  the  Missouri  River  Cities  compete  in  all  the 
territory  from  the  Missouri  river  to  the  Pacific  Ocean  and  from 
the  Canadian  boundary  to  the  Gulf,  and  in  much  of  this  territory 
they  meet  competition  more  or  less  keen  from  jobbers  at  Chicago, 
St.  Louis,  the  Twin  Cities,  Denver,  San  Francisco,  and  various 
smaller  joljbing  points.  In  Montana,  Washington,  and  common- 
points  territory  tlie  Missouri  River  Cities  jobbers  meet  strong 


JOINT  THROUGH   RATES  AND  PRORATING      341 

competition  from  jobbers  in  the  Twin  Cities,  New  York,  Chicago, 
St.  Louis,  and  San  Francisco ;  New  York  and  the  Twin  Cities 
having  an  advantage  in  that  territory  of  the  difference  between 
the  rates  from  New  York  to  the  Missouri  River  Cities  and  from 
New  York  to  the  Twin  Cities,  In  the  West  and  Southwest  the 
strongest  competitors  of  the  Missouri  River  Cities  are  New  York, 
Chicago,  and  St.  Louis.  In  Iowa,  southeastern  Dakota,  and  south- 
western Minnesota  the  rates  equahze  at  greater  distances  from 
the  Twin  Cities  than  from  the  Missouri  River  Cities. 

While  the  Missouri  River  Cities  jobbers  are  at  a  disadvantage 
as  compared  with  the  Twin  Cities  jobbers  in  Minnesota,  North 
Dakota,  northeastern  South  Dakota,  and  Canadian  territory,  the 
Twin  Cities  jobbers  are  at  a  hke  and  apparently  equal  disadvan- 
tage in  the  territory  immediately  west  and  southwest  of  the 
Missouri  River  Cities  and  in  the  Black  Hills  district  of  South 
Dakota.  There  are  points  west  of  the  Missouri  river  which  can 
be  reached  by  the  jobber  at  St.  Louis  or  at  New  York,  under  a 
combination  rate  based  on  St.  Louis,  cheaper  than  they  can  be 
reached  by  the  Missouri  river  Cities  jobbers  under  a  combination 
rate  based  on  the  Missouri  river,  but  the  evidence  seemed  to 
show  that  in  general  this  was  where  the  application  of  a  through 
rate  at  an  intermediate  point  on  the  same  line  had  that  effect. 

The  record  shows  that  3  wholesale  dry  goods  houses  at  Kansas 
City,  4  at  St.  Joseph,  and  2  at  Omaha  do  an  aggregate  annual 
business  of  about  $40,000,000.  They  estimate  that  their  inbound 
freight  charges  amount  to  about  3|  per  cent  of  the  total  sales ;  that 
their  total  expenses  amount  to  13  per  cent  of  the  total  sales  and 
that  on  an  annual  business  of  $5,000,000  tlie  Twin  Cities  jobbers 
would  have  an  advantage  of  approximately  $40,000  over  the 
jobbers  at  the  Missouri  River  Cities  by  reason  of  the  difference 
m  freight  rates.  This  estimate  })resumably  assumes  that  the  total 
of  the  year's  sales  is  made  in  territory  strictly  competitive  between 
the  Missouri  River  Cities  and  the  Twin  Cities,  and  that  it  all 
moves  under  the  first-class  rate. 

Complainants  insist  that  the  system  of  basing  rates  to  the 
Missouri  River  ('ities  and  points  beyond  the  Mississippi  river 
crossings  is  iinpro})er.    Their  expert  testilied  that  the  Mississip[)i 


342  IIAII.WA^-    PKOIILKMS 

riviT  basis  slumld  \h'  alxtlislu'd,  hut.  lie  did  nt)t  think  the  Missouri 
river  biusis  shoukl  be  aboHshed  because,  iu  liis  opuiion,  the  country 
west  of  the  Missouri  river  had  not  developed  sufficiently  as  yet 
to  warrant  that  ehant]^e. 

As  has  been  noted,  the  ^lissouri  River  Cities  have  a  certain 
teri-itory  naturally  tributary  to  them  in  which  the  Twin  Cities  are 
apparently  unable  to  compete  with  them,  but  in  certain  other 
territory  naturally  tributary  to  the  Twin  Cities,  the  Twin  Cities 
jobbers  have  an  advantage  over  the  Missouri  River  Cities  jobbers, 
and  this  must  necessarily  be  so  as  to  all  distributing  centers  if 
the  cost  of  the  service  and  the  distance  which  goods  are  trans- 
ported are  to  be  given  any  consideration  in  determining  transpor- 
tation rates.  It  is  not  possible  to  place  all  commercial  centers  on 
an  equality  in  the  cost  of  transportation  except  by  basing  trans- 
portation charges  upon  the  same  principle  that  underlies  the 
Government's  charges  for  the  transmission  of  mail  matter. 

It  is  therefore  proper  for  us  to  here  look  into  the  question  of 
not  only  what  the  rates  are  but  upon  what  principles  they  are 
constructed,  by  what  conditions  they  are  controlled,  and  what 
would  be  the  effect  of  important  changes  therein.  Chicago  is 
912  miles  and  St.  Louis  is  1063  miles  from  New  York,  Kansas 
City  is  280  miles  northwest  of  St.  Louis,  St.  Joseph  is  about 
65  miles  northwest  of  Kansas  City,  and  Omaha  is  approximatel}^ 
200  miles  northwest  of  Kansas  City.  The  short-line  mileages  from 
New  York  to  the  Missouri  River  Cities  are  via  St.  Louis  to  Kan- 
sas City,  1342  miles;  to  St.  Joseph,  1390  miles;  to  Omaha, 
1477  miles,  and  via  Chicago  to  Kansas  City,  1370  miles ;  to 
St.  Joseph,  1382  miles,  and  to  Omaha,  1405  miles.  The  short-line 
mileage  from  Chicago  to  Kansas  City  is  458  miles,  to  St.  Joseph 
470  miles,  and  to  Omaha  492  miles.  The  short-line  mileage  from 
Chicago  to  jNIinneapolis  is  420  miles  and  to  St.  Paul  409  miles. 
The  average  distances,  however,  between  Chicago  and  the  Mis- 
souri River  Cities  and  between  Chicago  and  the  Twin  Cities  are 
approximately  the  same. 

For  a  long  time  the  rates  from  New  York  to  points  east  of 
Chicago  and  to  points  between  Chicago  and  the  Mississippi  river 
have  been  established  on  a  percentage  basis,  tlie  New  York-Chicago 


JOINT   THROUGH   KATES  AND   PRORATING      343 


rate  being  taken  as  100  per  cent.  The  rates  from  New  York  to 
points  east  of  Chicago  are  fixed  at  certain  percentages  below  the 
New  York-Chicago  rates  and  from  New  York  to  points  beyond 
Chicago  up  to  the  Mississippi  river  crossings  at  certain  percent- 
ages above  the  New  York-Chicago  rates. 

Rates  from  New  York  to  the  Mississippi  river  crossings  were 
fixed  by  the  estabhshment  of  the  New  York -East  St.  Louis  rate 
at  116  per  cent  of  the  New  York-Chicago  rate,  and  it  will  be  seen 
that  the  mileage  from  New  York  to  East  St.  Louis  is  substantially 
116  per  cent  of  the  mileage  from  New  York  to  Chicago.  On 
January  1,  1908,  the  bridge  tolls  between  East  St.  Louis  and 
St.  Louis  were  taken  mto  the  through  rates  and  St.  Louis,  Mo., 
and  East  St.  Louis,  111.,  were  placed  upon  the  basis  of  117  per  cent 
of  the  New  York-Chicago  rates,  which  resulted  in  increasmg  the 
class  rates  1  cent  in  each  of  the  first  three  classes.  The  rates 
and  divisions  quoted  herein,  however,  are  those  m  effect  at  the 
time  of  the  hearing  of  this  case. 

East  St.  Louis  being  a  Mississippi  river  crossing,  and  the  rates 
having  been  established  at  116  per  cent  of  the  New  York-Chicago 
rates,  the  rates  from  New  York  to  all  of  the  other  Mississippi 
river  crossings  to  and  including  East  Dubuque,  111.,  were  fixed 
the  same  as  to  East  St.  Louis  on  traffic  moving  through  them 
and  to  points  beyond.  This  resulted  in  establishing  class  rates 
from  New  York  to  the  several  Mississippi  river  crossings,  in 
cents  per  100  pounds,  as  follows : 


1 

2 

3 

4 

5 

87 

75 

58 

41 

35 

The  local  class  rates  under  Western  Classification  applying 
from  the  several  Missi.ssip[)i  river  crossings  on  ti'affic  moving 
through  them  from  New  York  and  destined  to  the  Missouri  River 
Cities  were,  in  cents  per  100  pounds: 


1 

z 

3 

4 

5 

60 

45 

35 

27 

22 

MA 


l{AIl,^v.\^■  ruoi'.LKMS 


It  will,  tluMTfort',  \)o  seen  that  the  through  class  rates  from 
New  York  to  the  Missouri  River  Cities  made  by  combination  of 
the  class  rates  to  the  Mississippi  river  crossings  applicable  on 
business  beyond  and  the  (dass  rates  from  the  Mississippi  river 
crossings  to  the  Missonri  River  Cities  resulted  in  class  rates  in 
cents  per  100  pounds  as  follows: 


1 

2 

3 

4 

5 

147 

120 

93 

68 

57 

It  should  be  understood  that  these  rates  apply  on  traffic  moving 
via  Chicago  and  that  much  of  the  traffic  moving  through  the 
upper  Mississippi  river  crossmgs  moves  via  Chicago,  and  it  should 
be  remembered  that  the  rates  west  of  the  Mississippi  river  cross- 
ings are  not  constructed  upon  percentages  of  the  New  York- 
Chicago  rates,  or  upon  any  other  percentage  basis.  They  are  the 
independently  established  class  rates  applying  between  the  Mis- 
sissippi river  crossmgs  and  the  Missouri  river  crossmgs  and  are 
made  without  reference  to  any  methods  employed  in  fixing  the 
rates  from  the  Atlantic  seaboard  to  the  Mississippi  river  crossings. 

The  local  class  rates  from  Chicago  to  the  several  Mississippi 
river  crossings  are  on  scales  which  range  from  35.3  to  43.3  cents 
first  class,  and  it  will  therefore  be  seen  that  the  proportional  rate 
from  New  York  'to  the  Mississippi  river  crossings  applicable  on 
business  going  west  of  the  Mississippi  is  considerably  less  than 
the  full  combination  of  class  rates  on  Chicago.  The  proportionals 
from  New  York  to  the  Mississippi  river  crossmgs  through  Chicago 
are  divided  as  follows : 

Lines  east  of  Chicago : 


1 

2 

3 

4 

5 

72.3 

62.4 

48.4 

34.3 

29.4 

Lines  west  of  Chicago : 

1 

2 

3 

4 

.5 

14.7 

12.6 

9.6 

6.7 

5.6 

JOINT   THEOUGH   RATES  AND  PROEATING      345 


In  addition  to  the  above  division  of  the  proportional  rate  up 
to  the  Mississippi  river  crossings  the  lines  west  of  Chicago  on 
business  destined  to  the  Missouri  River  Cities  get  their  full  class 
rate  local  giving  them  as  earnings  on  this  traffic  for  their  service 
between  Chicago  and  the  Missouri  River  Cities  the  following,  m 
cents  per  100  pounds  : 


1 

3 

3 

4 

5 

74.7 

57.6 

44.6 

33.7 

27.6 

The  through  class  rates  from  New  York  to  the  Twin  Cities  in 
cents  per  100  pounds  are  divided  as  follows: 
To  the  lines  east  of  Chicago : 


1 

2 

3 

4 

5 

75 

65 

50 

35 

30 

To  the  lines  west  of  Chicago : 

1 

3 

3 

4 

5 

40 

34 

26 

18 

16 

And  it  is  thus  seen  that  in  this  division  the  lines  east  of  Chicago 
get  their  full  New  York-Chicago  rates.  The  division  going  to 
the  lines  west  of  Chicago  constitute  a  line  of  proportional  rates 
applicable  only  upon  through  business,  the  local  class  rates  be- 
tween Chicago  and  the  Twin  Cities  being  established  on  a  scale 
of  60  cents  first  class. 

Complainants  allege  that  the  operating  and  transportation  con- 
ditions between  Chicago  and  the  Missouri  River  Cities  and  be- 
tween Chicago  and  the  Twin  Cities  are  not  substantially  different 
and  in  no  sense  justify  the  existing  differences  in  rates. 

As  has  been  seen,  the  defendants  allege  the  controlling  influ- 
ence of  competition  by  water  and  via  the  Soo  Line  in  the  fixing 
of  the  Chicago-Twin  Cities  proportionals.    Complainant  argues 


;U(') 


i;aii.\\ w   iMa)i'.ij':MS 


lliai  this  claim  is  not  [)()ssi>ssr(l  of  any  nu-rit,  and  in  support  of 
that  armmuMii  cites  the  fact  that  these  Chicago-Twin  Cities  rates 
have  hccii  increased  during  the  season  of  lake  navigation  and 
nihu  c(l  ai  a  time  when  navigation  was  closed.  There  is  much 
contlici  in  the  testimony  as  to  the  eiTect  of  (he  competition  of  the 
Soo  Line  and  as  to  when  that  became  a  factor  in  the  situation. 
Complainants  went  to  great  trouble  to  locate  the  facts,  but  a 
careful  inquiry  into  the  records  of  the  Commission  show  that  in 
some  respects  complamants'  witnesses  were  mistaken  on  this  point. 
The  reports  of  the  Commission  disclose  that  in  1886  there 
were  class  rates  between  Chicago  and  the  Twin  Cities,  in  cents 
per  100  pounds,  as  follows: 


1 

2 

3 

4 

5 

40 

30 

20 

15 

10 

These  rates  were  in  effect  at  the  time  the  Chicago,  Burlington 
&  Northern  Railway  (now  Chicago,  Burlington  &  Quincy  Rail- 
way) began  its  operations  in  that  year.  From  that  time  to  June  4, 
1888,  these  rates  were  sometimes  higher  and  sometimes  lower 
than  above  quoted.  A  short  time  prior  to  the  date  last  mentioned, 
the  Northwestern  Association,  made  up  of  all  the  lines  between 
Chicago  and  the  Twin  Cities,  excepting  the  Chicago,  Burlington 
&  Northern,  increased  these  rates  to  the  basis  of  60  cents  first 
class.  The  Chicago,  Burlington  &  Northern  assented  to  the  60- 
cent  scale,  but  claiming  an  alleged  violation  of  the  agreement 
it  said : 

Finding  that  many  of  our  patrons  would  be  discriminated  against  by 
the  60-cent  scale,  and  owing  to  the  extremely  low  rates  from  the  seaboard 
prevailing  by  Lake  Superior  lines,  we  have  decided  the  scale, 

which  was : 


1 

2 

3 

4 

5 

40 

33 

26 

18 

12i 

JOINT  THROUGH  RATES   AND  PRORATING      347 


At  the  same  time  the  same  carrier  estabhshed  all-rail  propor- 
tional class  rates,  applicable  only  upon  traffic  originating  at  or 
east  of  the  western  termini  of  the  Trunk  Lines,  as  follows : 


1 

2 

3 

4 

5 

31 

22 

23 

17 

11 

In  re  C.  St.  P.  .f  K.  C.  Ry.,  2  I.  C.  C.  Rep.,  231. 

The  INIinneapolis,  St.  Paul  and  Sault  Ste.  Marie  Railway 
Company  completed  its  line  from  Sault  Ste.  Marie  to  Minneapolis 
m  January,  1888. 

In  July,  1889,  all  of  the  roads  between  Chicago  and  the  Twin 
Cities  established  the  60-cent  scale  between  Chicago  and  the  Twin 
Cities  on  traffic  from  the  Atlantic  seaboard  ;  on  September  25  it 
was  again  reduced  to  the  40-cent  scale  and  remained  there  until 
November,  when  the  60-cent  scale  was  again  restored.  This 
remained  in  effect  until  in  February,  1890,  when  the  40-cent 
scale  was  again  adopted.  It  was  raised  to  a  50-cent  scale  in 
August  and  to  the  60-cent  scale  in  November  of  the  same  year. 
This  continued  in  force  until  January,  1897,  when  the  Soo  Line, 
against  the  vigorous  protests  of  the  other  lines,  issued  a  tariff 
which  became  effective  in  February,  1897,  and  which  established 
proportional  class  rates  from  Sault  Ste.  ]\Iarie  to  the  Twin  Cities 
on  all  traffic  originating  south  of  Ogdensburg  and  east  of  New- 
port, Vt.,  when  routed  via  the  Soo  Line,  and  on  traffic  originating 
at  or  east  of  Pittsburg  when  routed  via  INIackinaw  City  destined 
to  Minneapolis  and  St.  Paul  in  cents  per  100  pounds  as  follows: 


1 

2 

3 

4 

5 

40 

35 

26 

18 

10 

This  line  of  differentials  in  connection  with  the  Canadian 
Pacific  rates  to  Sault  Ste.  Marie  materially  reduced  the  through 
class  rates,  and  all  of  the  lines  between  Chicago  and  the  Twin 
Cities  followed  this  reduction  in  May  of  1897.  In  June,  1899, 
the  Chicago-Twin  Cities  lines  advanced  these  proportionals  to  a 


o48 


ILVILW.W    IMJOr.LEMS 


50-cont  scale  and  at  a  time  when  lake  navigation  was  open.  Tliis 
scale  remained  in  effect  nntil  January,  1901,  when  it  was  again 
reduced  to  the  40-ceut  scale  at  a  time  when  navigation  was 
closed.  It  is  thus  seen  that  these  carriers  have  made  numerous, 
persistent,  and  vigorous  efforts  to  maintain  proportional  rates 
between  Chicago  and  the  Twin  Cities  higher  than  the  40-cent 
scale,  and  that  they  have  been  unable  to  do  so. 

The  Caiuidian  Pacific  Despatch  tariff  referred  to  by  defendants 
as  showing  maintenance  of  a  40-cent  scale  by  the  Soo  Line,  at  the 
same  time  it  was  i)arty  to  the  tariffs  fixing  the  50-cent  scale,  taken 
in  connection  with  I>oston  &  Maine  Railroad's  joint  west-bound 
tariff,  show  that  class  rates  from  Boston  and  points  taking  same 
rate  to  the  Twm  Cities  were  established  via  the  Canadian  Pacific 
Railway  and  the  Soo  Line,  in  cents  per  100  pounds,  as  follows: 


1 

2 

3 

4 

5 

105 

91 

70 

49 

42 

The  Chicago-Twin  Cities  lines  were  named  as  parties  to  these 
tariffs  as  well  as  the  Soo  Line,  but  it  should  be  understood  that 
these  rates  applied  via  a  differential  line  upon  which  the  same 
rates  are  now  in  effect. 

With  further  reference  to  the  influence  of  the  water  transpor- 
tation upon  the  Chicago-Twin  Cities  proportionals,  it  is  found 
that  the  class  rates  from  New  York  to  Buffalo,  in  cents  per 
100  pounds,  are : 


1 

2 

3 

4 

5 

39 

33 

28 

19 

16 

And  that  the  class  rates  from  Duluth  to  the  Twin  Cities,  in  cents 
per  100  pounds,  are: 

1 

2 

3 

4 

5 

.35 

30 

23 

17 

10 

JOINT  THROUGH  RATES   AND  PRORATING      349 

The  through  first-class  rate  New  York  to  the  Twin  Cities  is 
il.l5.  The  sum  of  the  rail  rates  New  York  to  Buffalo  and 
Duluth  to  the  Twin  Cities  on  first  class  is  74  cents,  leaving 
41  cents  that  could  be  applied  to  the  cost  of  transportation  by 
water  between  Buffalo  and  Duluth.  It  seems  safe  to  say  that  if 
the  all-rail  tln-ough  rates  were  materially  increased  with  any  assur- 
ance that  the  increase  would  be  mamtained  for  a  long  period, 
there  would  be  every  inducement  for  the  interested  jobbers  to 
arrange  for  independent  water  transportation  from  Buffalo  to 
Duluth  and  avail  themselves  of  the  combination  that  could  be 
so  constructed.  The  lake-and-rail  rate  on  first  class  New  York 
to  Duluth  is  68  cents  per  100  pounds,  which  added  to  the  first- 
class  rate  Duluth  to  the  Twin  Cities  of  35  cents  makes  a  com- 
bination rate  of  $1.03  as  compared  with  the  all-rail  rate  via 
Chicago  of  $1.15.  There  are  now  in  effect  lake-and-rail  rates 
from  New  York  to  the  Twin  Cities  on  a  scale  of  83  cents  per 
100  pounds  on  first  class  via  Duluth. 

The  controlling  influence  of  the  water  and  Canadian  competition 
over  the  rates  from  the  seaboard  to  the  Twin  Cities  is  apparent, 
and  it  is  also  apparent  that  the  defendant  carriers  west  of  Chicago 
must  meet  the  force  of  that  competition  or  refrain  from  participa- 
tion in  that  business.  Their  local  class  rates  from  Chicago  to  the 
Twin  Cities  are  on  the  basis  of  60  cents  first  class,  as  compared 
with  a  55-cent  scale  via  lake  and  rail  from  Chicago  to  the  Twin 
Cities  via  Gladstone  and  the  Soo  Line,  and  a  50-cent  scale  from 
Chicago  to  the  Twin  Cities  via  Duluth. 

The  joint  through  class  rates  from  New  York  to  the  Twin 
Cities  apply  up  to  the  Missouri  river  crossings  on  traffic  from 
the  Atlantic  seaboard  destined  through  them  to  Montana  com- 
mon points  and  to  Spokane,  Wash.,  and  common  points,  as 
well  as  upon  traffic  through  the  Twin  Cities  to  the  same  desti- 
nations. The  locals  from  the  Missouri  river  crossings  and  from 
the  Twin  Cities  are  added  thereto  to  make  up  the  combina- 
tion through  rates.  The  local  class  rates  from  the  Twin  Cities 
to  Montana  common  points,  and  to  Spokane,  Wash.,  and  com- 
mon ])oiiits,  are  the  same  as  from  the  Missouri  river  cross- 
ings  to  tile   same   destinations.    This   adjustment  is   forced  by 


350 


KAIl-WAV   TKOr.LEMS 


competition.  If  the  lines  via  the  Missouri  river  crossings  did 
not  niaki'  the  same  rates  to  Montana  and  Washington  points 
thai  are  available  via  the  Twin  Cities  they  eonld  get  none  of 
that  business. 

The  class  rates  from  Chicago  to  Oklahoma  CUty  moving  via 
Kansas  City  are  on  a  scale  of  $!l.50  per  100  pounds  first  class, 
of  which  the  carriers  between  Chicago  and  Jvansas  City  receive 
as  their  division  48  cents. 

The  class  rates  from  Chicago  to  Texas  common  points  applying 
via  Kansas  City  are  on  a  scale  of  -f  1.57  per  100  pounds  first  class, 
of  which  the  carriers  between  Chicago  and  Kansas  City  receive 
47.1  cents.  The  class  rates  from  Chicago  through  Kansas  City 
to  El  Paso,  Tex.,  are  on  the  scale  of  $1.69  per  100  pounds,  first 
class,  of  whicdi  the  carriers  between  Chicago  and  Kansas  City 
receive  as  their  division  47.1  cents.  The  distance  from  New  York 
to  the  Missouri  River  Cities  is  substantially  the  same  as  from 
Chicago  to  El  Paso. 

On  transcontinental  traffic  from  the  Atlantic  seaboard  to  the 
Pacific  coast  terminals,  carriers  west  of  Chicago  receive  as  their 
division  of  the  class  rates  for  the  haul  between  Chicago  and  the 
Missouri  river  crossings  on  the  first  five  classes,  in  cents  per 
100  pounds,  the  following: 


1 

2 

3 

4 

5 

33 

28.50 

24.75 

22.50 

19.50 

From  these  divisions  of  tlirough  rates  accepted  by  the  carriers 
between  Chicago  and  the  Missouri  river  (n-ossings  and  from  the 
admission  cjf  tlie  Chicago,  Burlington  and  Quinc}^  Railway  Com- 
pany in  its  answer  that  they  give  said  carriers  some  profit,  com- 
plainants argue  that  the  rates  charged  from  the  Mississi{)pi  river 
crossings  to  the  Missouri  river  crossings  are  unreasonably  and 
unjustly  high. 

Defendants  answer  this  by  asserting  that  a  low  division  of  the 
thi'ougli  rate  for  a  long  haul  is  not  fairly  comparable  with  the 
local  rate  between  the  same  points  ;  that  the  through  rates  arc 


JOINT   THROUGH    RATES  AXD  PRORATING      351 

not  made  or  controlled  by  them ;  that  they  are  frequently  made 
in  competition  with  water  transportation  to  the  Pacific  coast 
terminals  or  to  the  Gulf  ports,  and  that  while  none  of  them  can 
be  said  to  represent  less  than  the  actual  cost  of  the  service  they 
can  not  be  considered  in  and  of  themselves  as  remunerative  and 
can  not  be  fairly  taken  as  a  measure  of  their  rates.  JNIanifestly, 
a  carrier  may  not  properly  or  lawfully  engage  in  transportation 
at  a  rate  less  than  the  cost  of  the  service.  So  to  do  would  place 
an  improper  and  unlawful  burden  upon  other  traffic,  but  if  a  car- 
rier elects  to  accept  a  low  division  of  a  through  rate  for  a  long 
haul  rather  than  to  stay  out  of  that  busmess  it  can  not  be  held 
to  have  thereby  committed  itself  to  that  division  as  a  measure  of 
the  reasonableness  of  its  other  rates  for  transportation  between 
the  same  points  on  business  from  or  to  different  destinations  or 
of  a  different  character. 

Complainants  argue  that  the  cost  of  transportation  on  eastern 
and  western  roads  is  about  the  same ;  that  the  average  rate  per 
ton  per  mile  received  by  the  western  roads  is  greater  than  that 
received  by  the  eastern  roads,  and  that  the  conditions  of  trans- 
portation are  so  substantially  similar  that  it  would  be  entirely 
fair  to  project  to  the  Missouri  river  the  same  rate  per  ton  per 
mile  that  represents  the  rates  from  the  Atlantic  seaboard  to  the 
Mississippi  river.  There  are,  however,  differences  in  the  physical 
conditions.  The  density  of  population  and  of  traffic  is  materially 
less  west  of  the  ^Mississippi  river,  and  the  cost  of  operation  is 
greater,  due  among  other  things  to  higher  wages  and  higher  cost 
of  fuel  and  other  necessary  supplies.  It  seems  clear  that  the  lines 
west  of  the  Mississippi  river  are  entitled  to  a  somewhat  higher 
charge  than  would  be  received  for  the  same  service  on  the  lines 
east  of  the  Mississippi  river  and  it  seems  that  the  only  question 
to  be  determined  here  is  whether  or  not  the  class  rates  of  the 
defendant  carriers  between  the  Mississippi  river  and  the  Missouri 
River  Cities  on  business  from  the  seaboard  and  destmed  to  the 
Missouri  River  Cities  are  too  high.  It  seems  patent  that  any 
change  in  the  rates  east  of  the  Mississippi  river,  even  if  warranted, 
would  fail  to  accomplish  what  the  complainants  desire,  be(;ause 
whatever  of  advantagfe  accrued  tlierefrom  to  tlie  Missouri  River 


6')Z 


KA1L\\A\-    IMKtr.LEMS 


C'itiis  would  accnu'  lo  a  like  degree  or  extent  to  their  principal 
(•oMii)eiiii\e  conmiercial  centers,  to  wit,  New  York,  Chicago, 
St.  Louis,  and  the  Twin  Cities. 

The  average  short-line  distance  between  the  nearest  Mississippi 
river  crossmgs  and  the  individual  Missouri  River  Cities  is  abont 
275  miles.  The  average  distance  between  the  Mississippi  river 
crossings,  via  which  the  rates  apply,  and  the  ^Missouri  River  Cities 
is  325  miles.  As  has  been  before  stated,  the  local  class  rates  be- 
tween the  ^lississi})pi  and  the  Missouri  river  crossings  are,  in 
cents  per  100  pounds: 


1 

2 

3 

4 

5 

60 

45 

35 

27 

22 

And  these  are  tlie  rates  that  are  added  to  the  rates  up 
to  the  Mississippi  river  crossings  to  make  up  the  through 
rates  from  the  Atlantic  seaboard  to  the  Missouri  River  Cities. 
Are  these  rates  as  so  used,  and  the  through  rates  resulting 
therefrom,  unwarrantedly  high  or  unduly  discriminatory  or 
unjustly  prejudicial  ?  Can  they  be  changed  without  doing 
injustice  elsewhere  ? 

As  has  been  seen,  the  first-class  rate  from  the  Atlantic  sea- 
board to  Chicago  is  75  cents,  and  to  the  Mississippi  river  cross- 
ings is  87  cents.  From  Chicago  to  the  ^Missouri  river  crossings 
the  first-class  rate  is  80  cents,  and  from  the  Mississippi  river 
to  the  Missouri  river  is  60  cents.  The  through  first-class  rate 
from  the  seaboard  to  the  IVIissouri  river  is,  therefore,  11.47 ;  the 
combination  on  Chicago  is  11.55  and  on  St.  Louis  is  $1.47.  The 
St.  Louis  jobbers  can,  so  far  as  freight  charges  are  concerned, 
purchase  in  the  East  and  sell  at  all  points  east  of  the  Missouri 
River  Cities  cheaper  than  can  the  jobbers  in  the  Missouri  River 
Cities,  while  at  the  same  time  the  St.  Louis  dealers  can  sell  in 
the  Missouri  River  Cities  themselves  and  at  some  points  beyond 
them  just  as  cheaply  as  can  the  dealers  located  in  the  Missouri 
River  Cities.     The   Chicago  dealer  seems  to  have   a  handicap 


JOINT   THROUGH   RATES  AND  PRORATING       353 

of  8  cents  on  the  first-class  rate  as  compared  with  St.  Louis. 
This  no  doubt  is  due  to  the  fact  that  direct  hnes  from  the 
seaboard  to  St.  Louis,  belonging  to  one  sj'stem,  make  the  rate 
to  St.  Louis. 

The  class  rates  from  the  Atlantic  seaboard  to  Sioux  City  when 
made  upon  the  Mississippi  river  combination  through  any  cross- 
ing East  Burlington  to  East  Dubuque,  inclusive,  are  the  same 
as  to  Omaha.  The  combmation  on  Chicago  is  the  same  to  Sioux 
City  as  to  the  Missouri  River  Cities.  The  combination  on  ]\Iis- 
sissippi  river  crossmgs  south  of  East  Burlmgton  is  higher  to 
Sioux  City. 

If  the  local  class  rates  of  defendants  between  the  Mississippi 
and  Missouri  rivers  were  reduced,  it  would  give  the  same  degree 
of  advantage  to  all  the  producing  and  distributing  centers  on 
and  east  of  the  Missouri  river,  and  theu*  relative  advantages  or 
disadvantages  would  not  be  changed,  while  a  very  serious  inroad 
upon  the  revenues  of  the  carriers  would  inevitably  result,  and  at 
a  time  of  industrial  depression  when  it  could  not  well  be  borne. 
Such  a  change  would  necessitate  corresponding  changes  in  the 
rates  to  and  from  intermediate  pomts  and  would  probably  be 
reflected  in  changes  in  commodity  rates  as  well.  The  local  class 
rates  between  the  rivers  are  high,  but  this  is  not  the  time  to 
precipitate  such  a  violent  change  as  would  follow  an  impor- 
tant reduction  of  them.  The  first-class  rate  from  Buffalo  to 
Chicago,  about  540  miles,  and  from  Pittsburg  to  Chicago,  about 
465  miles,  is  45  cents.  From  Cincmnati  to  Chicago,  306  miles, 
it  is  40  cents. 

Complainants  urge  that  defendant  carriers  west  of  Chicago 
and  the  Mississippi  river  crossings  have,  from  tlieir  operations, 
accumulated  enormous  surpluses  and  that  therefore  they  can  not 
fairly  present  the  plea  of  financial  difficulty.  Especial  attention 
is  called  to  tlie  reports  of  the  defendant,  Chicago,  Burlington 
&  Quincy  Railway  Company,  which  show  a  surplus  of  nearly 
$42,000,000.  The  carrying  of  this  item  in  reports  is  certainly 
misleading  to  those  who  are  not  otherwise  acquainted  with  the 
true  facts.     This  surplus  is  hi  no  sense  available  cash  or  free 


354  KATLWAY  ri;()]'.LK:\rs 

surplus.  TIk'  ri'conl  in  this  case  sliows  that  it  simply  represents 
the  anu)uut  ot"  oarninos  that  have  been  expended  in  past  years 
for  betterments  and  improvements  in  the  road,  and  additions 
to  its  equipment. 

An  abundant  share  of  the  prosperity  and  development  of 
the  trans-Mississippi  and  trans-Missouri  territories  has  come  to 
the  Missouri  River  Cities,  from  which  this  complaint  comes, 
but  the  fact  that  they  have  prospered  in  the  past  as  a  result 
of  rapid  expansion  and  develo[)ment  of  new  territory  may  not 
be  taken  as  conclusive  evidence  of  the  correctness  or  justness  at 
this  time  of  the  rate  adjustment  that  has  prevailed  in  the  past. 
We  are  not  impressed  with  the  view  that  the  system  of  making 
rates  on  certam  basing-  lines  should  be  abolished.  No  system 
of  rate  making  has  been  suggested  as  a  substitute  for  it,  ex- 
cept one  based  upon  the  postage-stamp  theory,  or  one  based 
strictly  upon  mileage.  Either  of  these  would  create  revolution 
in  transportation  affairs  and  chaos  in  commercial  affah's  that 
have  been  builded  upon  the  system  of  rate  making  now  in 
effect.  It  must  not,  however,  be  assumed  tliat  a  basing  line 
for  rates  may  be  established  and  be  made  an  impassable  barrier 
for  through  rates,  or  that  cities  or  markets  located  at  or  upon 
such  basing  line  have  any  inviolable  possession  of,  or  hold 
upon,  the  right  to  distribute  traffic  in  or  from  the  territory 
lying  beyond.  Development  of  natural  resources,  increase  in 
population,  growth  of  manufacturing  or  producing  facilities, 
and  increased  traffic  on  railroads  create  changed  conditions 
which  may  warrant  changes  in  rates  and  in  rate  adjustments 
in  (n'dcr  to  afford  just  and  reasonable  opportunity  for  inter- 
change of  traffic  between  pomts  of  production  and  points  of 
large  consumption. 

We  can  not  agree  with  the  argument  that  the  rates  from 
the  Atlantic  seaboard  or  from  Chicacro  to  the  Missouri  River 
Cities  should  he  the  same  as  or  lower  than  rates  from  same 
points  to  the  Twin  Cities.  As  has  been  seen,  the  rates  to  the 
Twin  Cities  can  not  escape  the  influence  of  the  water  and 
Canadian  competition. 


JOINT   THROUGH  RATES  AND  PRORATING      355 


As  has  been  stated,  the  tlirough  rates  from  Atlantic  seaboard 
territory  to  the  Missouri  River  Cities  are  made  by  adding  together 
the  rates  from  points  of  origm  to  the  Mississippi  river  crossings, 
using  proportional  rates  when  such  are  available,  and  the  local 
class  rates  from  the  Mississippi  river  crossings  to  the  Missouri 
River  Cities.  The  through  rates  so  established  are,  in  our 
opinion,  unreasonably  high.  This  is  so  because  those  portions  of 
the  through  rates  which  apply  between  the  Mississippi  river 
crossings  and  the  Missouri  River  Cities  are  too  high.  These  are 
defendants'  "  separately  established  rates  "  which  are  "  applied 
to  the  through  transportation,"  and,  therefore,  the  through  rates 
should  be  adjusted  by  reduction  of  those  factors  or  parts  thereof 
which  are  found  to  be  unreasonable. 

Out  of  consideration  for  long-established  custom  in  rate  con- 
struction and  publication,  involving  different  classifications,  we 
refrain  from  establishing  joint  through  rates,  and,  permitting  the 
rates  from  Atlantic  seaboard  territory  to  the  ^Mississippi  river 
crossings  to  remain  as  at  present,  we  conclude  that  the  separately 
established  rates  of  the  defendants,  Chicago,  Rock  Island  &  Pa- 
cific ;  Chicago,  Burlington  &  Quincy ;  Chicago,  Milwaukee  & 
St.  Paul ;  Chicago  &  Northwestern,  and  Chicago  Great  Western 
Railway  companies,  applied  between  the  Mississippi  river  cross- 
ings and  the  Missouri  River  Cities  to  the  through  transportation 
of  shipments  moving  under  class  rates  and  coming  from  the 
Atlantic  seaboard,  takuig  New  York  as  representative,  should 
be  reduced  to  the  following  scale : 


1 

2 

3 

4 

5 

51 

38 

30 

23 

19 

and  that  these  rates  should  also  be  applied  to  the  transportation 
of  through  shipments  which  move  under  class  rates  and  which 
originated  at  points  of  origin  specified  on  pages  3  and  4  of  com- 
plainants' Exhibit  A,  same  being  the  aforesaid  Western  Trunk 
Line  Tariff  No.  786,  I.  C.  C.  No  678,  or  at  points  taking  the 
same  rates. 


o)!)  RAILWAY  PROBLEMS 

Tlu'st'  ratos  slumld  also  \)v  ap[)lie(l  on  tral'lic  from  same  points 
of  origin  (U'stini'd  to  ISioux  City,  Iowa,  when  it  moves  tlirougli 
any  i>f  the  Mississippi  river  crossings,  East  Burhngton  to  East 
l)ul)U([ue,  inclusive. 

As  to  the  other  defendants,  the  com[)laint  should  be  dismissed. 

An  order  will  be  entered  in  accordance  with  these  views. 


XIV 

THE   SOUTHERN   BASING  POINT  SYSTEM 

The  Alabama  Midland  Case^ 

Lo7ig  and  Short  Haul 

Clements,  Commissioner : 

******** 

Troy  is  situated  at  the  intersection  of  the  roads  of  the  Alabama 
Midland  and  the  Georgia  Central  companies.  Montgomery  is 
at  the  terminus  of  the  Alabama  Midland,  fifty-two  miles  north- 
west from  Troy,  and  shipments  to  Montgomery  over  that  road 
from  New  York,  Baltimore  and  northeastern  cities,  and  from 
the  Atlantic  seaports,  Brunswick,  Savannah,  Charleston,  West 
Point  and  Norfolk,  and  from  Port  Royal,  S.  C,  and  Gainesville, 
Ocala  and  Tampa,  Fla.,  pass  through  Troy. 

The  Savannah,  Florida  &  Western  Railway  and  the  Ocean 
Steamship  Company,  and  the  Savannah,  Florida  &  Western 
Railway  and  Merchants  &  Miners  Transportation  Company, 
form  with  the  Alabama  Midland  Railway  two  through  lines, 
the  former  from  New  York  and  the  latter  from  Baltimore,  over 
which  traffic  is  carried  on  through  rates  and  through  bills  of 
lading  to  Troy  and  through  Troy  to  Montgomery.  The  Georgia 
Central  forms  through  lines  in  connection  with  the  Ocean  Steam- 
ship Company  and  Merchants  &  Miners  Transportation  Com- 
pany to  Troy  and  Montgomery  from  New  York  and  Baltimore. 
The  class  rates  in  cents  per  hundred  pounds,  except  class  F, 
which  is  per  bbl,,  over  the  above  lines  (sea  and  rail)  from  New 
York  and  Baltimore  to  Troy  and  Montgomery,  respectively, 
are,  as  follows : 

1  Decided  August  15,  1898.  Interstate  Commerce  Reports,  Vol.  VI,  pp.  3-35. 
Overruled  by  the  Supreme  Court,  vide,  p.  378,  infra.  Chapter  XIII  of  Ripley's 
Railroads :  Rates  and  Regulation  describes  the  southern  basing-point  system 
as  a  type  of  long-and-short-haul  problem.  At  p.  473  of  the  same  work  this 
case  is  treated  in  its  legal  aspects. 

357 


KAILWAV   riJor.LEMS 


-fYorrv. 

GULF  OF  MEXICO, 


Sea  and  Rail 


Class 

From  New  York 

Fkom  Baltimore 

To  Montgomery 

To  Troy 

To  Montgomery 

To  Troy 

1    .... 

114 

136 

106 

129 

2 
3 

98 
86 

117 
103 

90 
83 

111 
98 

4 

73 

89 

70 

84 

5 

60 

74 

57 

70 

0 

49 

61 

46 

58 

A 

36 

— 

33 

— 

B 

48 

— 

45 

— 

C 

40 

— 

37 

— 

D 

39 

— 

36 

E 

58 

— 

55 

— 

H 

68 

— 

72 

— 

F  (per  bbl.) 

78 

— 

65 

— 

THE  ALABAMA  M1DLA^'1)   CASE 


359 


There  are  also  published  "  all  rail "  rates  via  the  "  Great 
Southern  Despatch "  line,  from  New  York  and  Baltimore  to 
Troy  and  Montgomery.  On  this  line  traffic  is  carried  from 
New  York  to  Harrisburg  over  the  Pennsylvania  road,  from 
Harrisburg  to  Hagerstown  over  the  Cumberland  Valley  road, 
from  Hagerstown  to  Bristol  over  the  Norfolk  &  Western,  and 
from  Bristol  to  Chattanooga  over  the  East  Tennessee,  Virginia 
&  Georgia  road.  .  .  } 

The  class  rates  in  cents  per  hundred  pounds  (except  class  F, 
which  is  per  bbl.)  over  the  above-described  "  all  rail "  lines  to 
Troy  and  Montgomery  from  New  York  and  Baltimore,  are  as 
follows  : 

All  Rail 


From  Kew  York 

From  Baltimore 

To  ^Montgomery 

To  Troy 

To  Montgomery 

To  Troy 

1    .  .  .  . 

114 

144 

106 

136 

2 

98 

123 

90 

115 

3 

86 

108. 

83 

105 

4 

73 

93 

70 

90 

5 

60 

77 

57 

74 

6 

49 

63 

46 

60 

A 

36 

— 

33 

— 

B 

48 

— 

45 

— 

C 

40 

— 

37 

— 

D 

39 

— 

36 

— 

E 

58 

— 

55 

— 

H 

68 

— 

65 

— 

F  (per  bbl.) 

78 

— 

72 

— 

It  appears  that  shipments  of  phosphate  rock  are  made  via  the 
Alabama  Midland,  as  the  terminal  road,  to  Troy  and  through 
Troy  to  Montgomery  from  Charleston  and  Port  Royal,  South 
Carolina,  and  from  Gainesville  and  other  points  in  Florida. 
The  roads  which  connect,  and  constitute  through  lines,  with  the 

1  These  routes  are  mapped  in  the  able  and  elaborate  arsjument  of  Judge  (Ed.) 
Baxter  before  the  Supreme  Court.  U.  S.  Sup.  Court,  October  term,  1896,  No. 
563,  pp.  39  eiseg.  —  Ed. 


MC.O 


1{AIL\\'AY  PROBLEMS 


Alubanui  Mldlaiul.  from  those  cities  to  Troy  and  Montgomery, 
lire  tlie  following:  .  .  . 

The  rates  in  cents  per  ton  on  phosphate  rock  from  Port 
lioyal,  Charleston  and  Gainesville,  to  Troy  and  Montgomery, 
respectively,  are  as  follows : 


To 

From  Port  Royal 

From  Charleston 

From  Gainesville 

Troy     .... 
Montgomery  .     . 

322 
300 

322 
300 

322 
300 

The  following  roads  constitute  through  routes  or  lines  in 
connection  with  Alabama  Midland  to  the  Atlantic  seaports, 
Brunswick,   Savannah,   Charleston,  West  Point  and  Norfolk; 

to    wit  ^0^0i^^^^ 

The  rates  in  cents  per  hundred  pounds  on  cotton  from  Troy 
and  Montgomery  respectively,  to  these  ports  are : 


From 

To 
Brunswick 

To 
Savannah 

To 
Charleston 

To 
West  Point 

To 
Norfolk 

Troy  .     .     . 
Montgomery 

47 
45 

47 
45 

52 
45 

51 

51 

When  the  complaint  was  filed  the  cotton  rate  from  Mont- 
gomery to  Brunswick,  Savannah  and  Charleston  was  40  cts.  per 
hundred  pounds.  It  has  since,  as  appears  above,  been  raised 
to  45  cts.  and  the  rate  from  Troy  to  Charleston  has  been  raised 
to  52  cts.  ******* 

None  of  the  traffic  involved  in  this  case  is  carried  by  the 
Georgia  Central  either  through  Troy  to  Montgomery  or  through 
Montgomery  to  Troy.  .  .  . 

But  as  to  the  Alabama  Midland  and  its  connections  consti- 
tuting through  lines,  the  case  is  different.  Interstate  traffic  is 
carried  over  that  road  to  Troy  and  through  Troy  on  to  Mont- 
gomery, and  in  the  opposite  direction,  from  Troy,  and  from 
Montgomery  through  Troy,  the  haul  to  and  from  Montgomery 


THE  ALABAMA  MIDLAND  CASE  361 

being  52  miles  greater;  and  in  respect  to  this  traffic  the  proof 
shows  departures  from  the  rule  of  the  Statute,  (1)  as  to  class 
goods  shipped  from  New  York,  Baltimore  and  the  East ;  (2) 
as  to  phosphate  rock,  shipped  from  Port  Royal  and  Charles- 
ton, S.  C,  and  Gainesville  and  other  points  of  origin  of  such 
shipments  in  Florida ;  and  (3)  as  to  cotton  shipped  from  Troy 
and  from  Montgomery  to  the  Atlantic  seaports,  Brunswick, 
Savannah,  Charleston,  West  Point  and  Norfolk.  As  vyill  be 
seen  from  the  tables  given  above,  the  "  sea  and  rail "  rates  on 
class  goods  from  Baltimore  to  Troy  range  from  12  cts.  per 
hundred  pounds  on  class  6  to  23  cts.  on  class  1  higher  than 
those  on  such  goods  shipped  through  Troy  to  Montgomery, 
and  from  New  York  to  Troy,  from  12  cts.  to  22  cts.,  and  the 
"  all  rail "  rates  from  Baltimore  and  New  York  to  Troy,  from 
14  cts.  to  30  cts.  These  class  rates  are  applied  to  sugar  and 
coffee,  which  are  the  heavy  goods  mostly  shipped  to  Troy  from 
the  East,  and  also  to  dry  goods,  notions,  and  many  other  com- 
modities. The  rate  on  phosphate  rock  from  Port  Royal,  Charles- 
ton, and  Gainesville  to  Troy  is  22  cts.  per  ton  higher  than  that 
on  such  rock  shipped  through  Troy  to  Montgomery,  and  on 
cotton  the  rate  from  Troy  to  the  seaports,  Brunswick  and 
Savannah,  is  2  cts.  per  hundred  pounds  and  to  Charleston  7  cts. 
per  hundred  higher  than  that  from  Montgomery  via  Troy. 

Where  substantial  dissimilarity  of  circumstances  and  condi- 
tions is  set  up  by  defendant  carriers  in  justification  of  depart- 
ures from  the  "  long  and  short  haul "  rule  of  the  Statute,  the 
burden  is  upon  them  to  establish  such  dissimilarity.  Re  Louis- 
ville cf  N.  R.  Co.,  1  Inters.  Com.  Rep.  278,  1  I.  C.  C.  Rep.  31 ; 
Spartanburg  Board  of  Trade  v.  Riclimond  ^  D.  R.  Co.,  2  Inters. 
Com.  Rep.  193,  2  L  C.  C.  Rep.  304.  Water  competition  at 
Montgomery  via  the  Alabama  river,  is  adduced  as  a  justification 
in  the  answer  of  the  Alabama  Midland  and  by  some  of  the 
other  defendants.  In  the  case  of  Re  Louisville  ^  N.  R.  Co., 
supra,  it  was  held  that  "  actual "  water  competition  "  of  con- 
trolling force  in  respect  to  traffic  important  in  amount "  may 
constitute  the  dissimilar  circumstances  and  conditions  author- 
izing a  departure  from  the  general  rule  of  the  Statute.    In  the 


362  ItAILWAV    TROBLEMS 

case  of  Harwell  v.  Columhus  J-  IF.  li.  Co.,  1  Inters.  Com.  Rep. 
Gol,  1  I.  C.  ('.  Rep.  -3(),  the  CDinplaiiit  alleged  unjust  discriini- 
natioii  against  Opelika  and  in  favor  of  Montgomery  and  Colum- 
bus. Water  competition  at  Montgomery  via  the  Alabama  river 
was  (as  in  the  present  case)  set  up  by  way  of  justification.  This 
defense  was  not  sustained  and  tlie  Commission  in  overruling  it 
said,  '^  the  mere  fact  that  a  point  is  situated  upon  a  navigable 
stream  does  not  of  itself  justify  the  lesser  charge  for  the  longer 
haul  to  such  point,"  and  that,  in  order  to  justify  such  lesser 
charge,  the  water  competition  must  "  control  the  carriage  of  the 
traffic  on  tohich  the  discrimination  is  made.''''  In  that  case  it  is 
further  said,  "  The  Commission  is  aware  that  an  independent 
and  active  line  of  steamers  connects  Montgomery  with  the  At- 
lantic seaboard  at  Mobile,"  but  that  the  fact  "without  more," 
that  the  "  railroads  have  water  competition  and  are  compelled 
to  meet  it,"  is  not  held  to  be  "  sufficient  to  justify  the  lesser 
charge  for  the  longer  distance."  Conceding  that  there  is  a  line 
of  boats  running  between  Montgomery  and  Mobile  (of  which 
fact,  however,  there  is  no  proof,  in  this  case)  that  alone  would 
not  be  sufficient  to  justify  the  greater  charge  to  Troy  than  to 
Montgomery.  ...  In  the  affidavit  filed  by  counsel  for  the  de- 
fendants is  a  statement  that  "  the  business  on  the  Alabama  river, 
according  to  the  report  of  the  United  States  Engineer,  for  the 
year,  1891,  was  52,349  bales  of  cotton  carried  by  boat  and  44,500 
tons  of  other  freight."  This  statement  .  .  .  purports  to  give 
the  entire  cotton  and  other  business  on  the  river  for  the  year 
named  without  stating  the  point  or  points  at  which  it  originated, 
or  the  direction  in  which  it  was  moved.  How  much  of  it  went 
from  Montgomery  or  points  above  or  below  Montgomery  down 
the  river  towards  Mobile,  or  from  Mobile  and  points  above  that 
city  up  the  river  to  Montgomery  does  not  appear.  As  showing 
water  competition  of  controlling  force  at  Montgomery  on  traffic 
to  that  city  from  New  York,  Baltimore  and  other  northeastern 
cities,  or  from  the  South  Carolina  and  Florida  phosphate  beds, 
or  from  Montgomery  to  the  Atlantic  seaports,  Brunswick, 
Charleston  and  Savannah,  the  statement  is  valueless.  (This  is 
true,  also,  as  to  the  traffic  from  St.  Louis  and  from  Louisville, 


THE  ALABAMA  MIDLAND   CASE  363 

Cincinnati  and  other  Ohio  river  points,  hereinafter  to  be  con- 
sidered.) There  are  regular  lines  of  ocean  steamers  from  those 
ports  to  New  York,  Baltimore  and  other  cities  on  the  northeast 
coast,  but  there  does  not  appear  to  be  such  line  from  Mobile, 
either  to  those  cities  or  to  any  foreign  port.  The  only  witness 
questioned  by  counsel  for  the  defendants  as  to  the  effect  of 
water  competition  at  Montgomery  on  shipments  of  cotton  to 
the  Atlantic  ports  testified  that  "  the  river  competition  plays 
no  great  pait."  An  attempt  was  made  to  show  that  some  ship- 
ments of  phosphate  rock  had  been  made  from  the  Florida  points, 
Ocala  and  Tampa  (the  latter  on  the  Gulf  coast)  via  Mobile  and 
the  Alabama  river  to  Montgomery,  but  the  witness  testified 
that  he  had  never  known  such  shipments  to  be  made,  that 
he  himself  had  "  tried  to  get  a  rate  by  that  line  to  Mont- 
gomery and  had  been  unable  to  get  it,"  and  that  he  thought 
it  impracticable  as  "  the  goods  would  have  to  be  transferred  at 
Mobile  to  get  to  Montgomery  and  then  would  have  to  be  hauled 
to  the  works."  No  attempt  is  made  to  establish  substantial  dis- 
similarity of  circumstances  and  conditions  at  Montgomery  on 
the  ground  of  rail  competition  further  than  by  proof  of  the 
fact  that  there  are  a  number  of  railway  lines  running  to  and 
through  that  city  connecting  with  different  parts  of  the  coun- 
try. This  alone,  it  is  scarcely  necessary  to  say,  is  not  suffi- 
cient. Re  Louisville  <f  N.  R.  Co.,  1  Inters.  Com.  Rep.  278,  1  I. 
C.  C.  Rep.  31. 

Our  conclusion  is  that  no  justification  has  been  shown  for 
the  departures,  complained  of  and  established  by  the  proof, 
from  the  general  rule  of  the  4tli  section  of  the  Act  to  Regulate 
Commerce. 

******** 

The  main  cause  of  complaint  on  the  part  of  Troy,  however, 
in  connection  with  this  system  of  making  export  rates,  as  dis- 
closed by  the  evidence,  is,  that  while  its  benefits  are  given  by 
the  roads  composing  the  Southern  Railway  &  Steamship  Asso- 
ciation to  Montgomery  and  other  favored  localities  on  their 
lines,  they  are  denied  to  Troy,  and  it  is  contended  that  this  is 
an  unjust  discrimination  against  Troy.    This  contention  is  apart 


364  iJAiLWAV  riJor.LEMS 

fiom  ami  independent  of  the  question,  whether  the  system  is 
itself  linvful  and  justiiied  as  applied  to  Montgomery  and  other 
points.  If  it  be  lawful  in  itself,  it  cannot  lawfully  be  so  applied 
as  to  unduly  favor  one  locality,  to  the  prejudice  of  another. 
Both  the  Alabama  Midland  and  the  Georgia  Central  are  mem- 
bers of  the  Southern  Railway  &  Steamship  Association,  and 
Troy  as  well  as  Montgomery  is  located  on  those  roads.  The 
haul  from  ^Montgomery  over  the  Georgia  Central  to  the  Atlantic 
ports  named  is  about  10  miles  longer  than  from  Troy  over  that 
road,  and  the  haul  from  INlontgomery  to  those  ports  over  the 
Alabama  Midland  is  52  miles  longer  than  from  Troy,  and  is 
also  throuo-h  Troy.  The  charge  of  the  lesser  rate  from  Mont- 
gomery than  from  Troy  over  the  Georgia  Central  would  seem 
to  be  a  discrimination  against  Troy  and  over  the  Alabama  Mid- 
land, also,  a  departure  from  the  "  long  and  short  haul  rule  "  of 
the  Statute.  The  principal  article  of  export  shipped  from  Troy 
and  ^lontgomery  over  these  roads  to  the  Atlantic  is  cotton.  The 
cotton  business  of  Troy  is  large,  amounting  in  1892  to  38,500 
bales,  aggregating  in  value  $1,500,000,  nearly  a  third  of  its 
total  business  of  all  kinds.  No  excuse  is  offered,  and  we  are 
unable  to  conjecture  any  valid  reason,  why  Troy  is  excluded 
from  the  benefit  of  the  export  system  of  rate  making  applied  to 
Montgomery.  The  fluctuations  in  ocean  rates  at  the  southern 
ports  and  other  matters  set  up  by  the  southern  carriers  as  ren- 
dering necessary  or  justifying  this  system,  would  seem  to  apply 
to  shipments  from  Troy  as  well  as  from  Montgomery. 

It  appears,  as  alleged  in  the  complaint,  that  on  shipments  of 
cotton  from  Troy  via  Montgomery  to  New  Orleans,  the  shipper 
is  charged  tlie  full  local  rate  to  Montgomery  both  by  the  Ala- 
bama Midland  and  the  Georgia  Central.  The  local  from  Troy 
to  Montgomery  is  23  cts.  per  hundred  pounds  and  the  rate  from 
Montgomery  on  is  45  cts.,  making  a  total  tlirough  rate  from 
Troy  to  New  Orleans  of  68  cts.  The  testimony  is  that  under 
this  rate  Troy  is  debarred  from  shipping  cotton  via  New  Orleans 
for  Europe  and  is  left  only  the  outlet  via  Savannah  and  other 
Atlantic  ports,  and  that  this  is  a  disadvantage  to  Troy  inasmuch 
as  cotton  shipped  via  New  Orleans  is  classed  "  New  Orleans 


THE  ALABAMA  MIDLAND   CASE  365 

cotton,"  which  is  valued  at  from  ^^  to  ^  of  a  cent  per  pound 
higher  than  other  cotton. 

The  haul  from  Troy  to  Montgomery  may  be  made  either  over 
the  Alabama  Midland  or  via  Union  Springs  over  the  lines  of  the 
Georgia  Central  and  from  Montgomery  to  New  Orleans  it  is  made 
over  the  Louisville  &  Nashville  road. 

In  the  case  of  Harwell  v.  Colnmhus  tf  W.  R.  Co.^  1  Inters. 
Com.  Rep.  631,  1  I.  C.  C.  Rep.  236,  cited  in  his  brief  by  counsel 
for  complainant,  it  was  charged  that  through  rates  and  through 
bills  of  lading  were  unjustly  denied  to  Opelika  on  shipments  of 
cotton  via  Montgomery  to  New  Orleans,  and  the  Commission 
held  that  such  through  rates  and  bills,  being  important  facilities 
in  the  transportation  of  cotton  and  being  given  on  other  com- 
modities and  to  other  points  similarly  situated,  should  be  given 
Opelika  and  that  the  refusal  of  the  same  in  the  absence  of  a 
valid  excuse  for  such  refusal  was  an  unjust  discrimination  against 
Opelika.  In  the  present  case,  however,  it  is  neither  alleged  nor 
proven  that  through  rates  and  billing  are  denied  Troy  on  ship- 
ments of  cotton  via  Montgomery  to  New  Orleans,  but  that  on 
the  haul  from  Troy  to  Montgomery  over  either  the  Alabama 
Midland  or  the  Georgia  Central,  the  local  rate  between  those 
points  is  charged  and  collected  as  a  part  of  the  through  rate  to 
New  Orleans.  The  charge  is  in  legal  effect  that  the  aggregate 
through  rate  thus  arrived  at  is  unjustly  discriminatory  against 
Troy.  "While,"  as  was  said  in  the  case  of  the  Railroad  Com. 
of  Florida  v.  Savan^tali,  F.  ^  W.  R.  Co.,  3  Inters.  Com.  Rep. 
688,  5  I.  C.  C.  Rep.  13,  "  the  complainant  has  no  interest  in 
the  division  the  defendants  may  make  between  themselves  of 
a  through  rate  and  that  division  does  not  determine  what  the 
charge  to  the  public  should  be,  yet  '  it  is  not  without  signifi- 
cance in  determining  what  are  reasonable  rates  for  the  whole 
distance  on  the  lines  in  question.'  "  See  Brady  v.  Pennsylvania 
R.  Co.,  2  Inters.  Com.  Rep.  78,  2  I.  C.  C.  Rep.  131.  The  dis- 
tance from  Troy  to  Montgomery  over  the  Alabama  Midland 
(the  short  line)  is  52  miles  and  from  Montgomery  to  New 
Orleans  over  the  Louisville  &  Nashville  road,  320  miles.  The 
rate  of  23  cts.  per  hundred  pounds  from  Troy  to  Montgomery 


;UU;  KAILWAV    i'KUJlLKMS 

is  4.42  mills  per  mile ;  the  rate  of  45  cts.  from  Montgomery  to 
New  Orleans  is  1.40  mills  per  mile;  the  rate  of  47  cts.  from 
Troy  to  Savannah  (359  miles)  is  1.30  mills  per  mile  ;  and  the 
rate  of  45  cts.  from  Montgomery  to  Savannah  (411)  miles  is  1.09 
mills  per  mile.  There  is,  also,  a  through  rate  on  cotton  from 
Columbus,  Ga.,  to  New  Orleans  of  50  cts.  per  hundred  pounds. 
The  distance  from  Columbus  to  New  Orleans  over  the  Georgia 
Central  via  Union  Springs  to  Montgomery  and  thence  over  the 
Louisville  &  Nashville  road  is  414  miles,  and  this  rate  of  50  cts. 
is  1.20  mills  per  mile.  It  thus  appears  that  the  rate  of  23  cts. 
from  Troy  to  Montgomery  is,  on  a  mileage  basis,  four  times  as 
large  as  that  from  Montgomery  to  Savannah  and  more  than 
three  times  as  large  as  the  rates  from  Montgomery  and  from 
Columbus  to  New  Orleans,  and  from  Troy  to  Savannah.  The 
aggregate  through  rate  from  Troy  to  New  Orleans  of  68  cts. 
yields  1.80  mills  per  mile. 

Through  rates,  it  is  true,  are  not  required  to  be  made  on  a 
strictly  mileage  basis,  but  mileage  is  as  a  general  rule  an  ele- 
ment of  importance  and  "  due  regard  to  distance  proportions 
should  be  observed  in  connection  with  the  other  considerations 
that  are  material  in  fixing  transportation  charges."  3IcMorran 
V.  Grand  Trunk  R.  Co.  of  Canada,  2  Inters.  Com.  Rep.  604,  3 
I.  C.  C.  Rep.  252.  The  cost  of  the  services  in  railway  transpor- 
tation is  the  expense  of  the  two  terminals  and  the  intermediate 
haul.  The  terminal  expenses  remain  the  same  without  reference 
to  the  length  of  the  haul.  A  local  rate  covers  the  expenses  of 
both  terminals,  but  a  division  of  a  through  rate  allotted  to  either 
of  the  terminal  carriers  of  the  through  line  can  only  embrace 
the  expense  of  one  terminal,  and  because  of  this  difference  in 
expense  among  other  reasons,  local  rates  are  made  as  a  general 
rule  much  higher  in  proportion  to  the  length  of  haul  than 
through  rates  or  any  division  thereof.  A  local  rate,  which  pre- 
sumably is  adopted  as  covering  both  the  initial  and  final  expenses 
of  the  haul,  is  prima  facie  excessive  as  part  of  a  through  rate 
over  a  through  line  composed  of  two  or  more  carriers.  The  rate 
of  23  cts.  from  Troy  to  Montgomery  is  admitted  to  be  the  local 
between  those  points,  which  is  charged  on  a  haul  originating  at 


THE   ALABAMA   MIDLAND   CASE  3G7 

the  former  and  ending  at  the  latter  and  hence  covers  the  expense 
to  the  carrier  (either  the  Alabama  Midland  or  the  Georgia  Cen- 
tral) at  both  terminals. 

******** 

On  the  hanls  from  Montgomery  to  New  Orleans,  from  Mont- 
gomery to  Savannah,  from  Troy  to  Savannah  and  from  Columbus 
to  New  Orleans,  there  are  the  expenses  of  both  terminals  as  well 
as  the  haul  from  Troy  to  New  Orleans.  It  cannot  be  assumed 
that  on  a  haul  from  Troy  to  New  Orleans  the  initial  expenses  at 
Troy  are  greater  than  at  Montgomery  on  haul  from  that  point 
to  New  Orleans  or  to  Savannah,  or  at  Columbus  on  haul  from 
that  point  to  New  Orleans,  or  at  Troy  itself  on  a  haul  in  the 
opposite  direction  to  Savannah.  No  reason  has  been  shown,  and 
we  can  conceive  of  none,  why  a  higher  proportionate  rate  should 
be  charged  on  cotton  from  Troy  to  New  Orleans  than  from  Mont- 
gomery, or  from  these  other  points  on  the  several  hauls  men- 
tioned. The  disproportion,  as  we  have  seen,  is  attributable  to 
the  charge,  as  a  part  of  the  through  rate  to  New  Orleans,  of  the 
local  from  Troy  to  INIontgomery,  and  the  truth  appears  to  be 
that  this  exaction  of  the  local  rate  is  an  incident  and  in  pur- 
suance of  what  is  termed  the  "  tiade  center,"  or  "  basing,"  or 
"distributing  point"  system,  which  the  Commission  has  more 
than  once  condemned  as  unjust  discrimination  and  in  violation 
of  law,  and  which  we  will  be  called  on  to  refer  to  more  at  length 
in  connection  with  the  class  rates  from  Louisville,  Cincinnati 
and  St.  Louis  to  Montgomery,  Columbus  and  Troy,  hereafter  to 
be  considered. 

A  rate  from  Troy  to  New  Orleans  based  on  the  present  mile- 
age rate  from  Montgomery  to  that  city  would  amount  to  52.21 
cts.  As  a  general  rule,  however,  while  the  aggregate  througli 
rate  steadily  increases  as  the  distance  increases,  the  rate  per 
ton  or  hundredweight  per  mile  decreases.  Under  this  rule,  the 
distance  from  Troy  being  52  miles  greater  than  from  Mont- 
gomery, the  rate  per  hundred  pounds  per  mile  from  Troy,  in 
the  absence  of  exceptional  conditions,  should  be  slightly  less 
than  that  from  Montgomery.  In  view  of  this  rule,  and  of  the 
rate  of  50  cts.  from  Cvolumbus,  a  longer  distance  point  by  42 


368 


KAiL\NAY    TKOBLEMS 


miles  than  Troy,  our  conclusion  is  that  the  through  rate  on 
cotton  from  Troy  via  Montgomery  to  New  Orleans  should  not 
exceed  50  cts.  per  hundred  pounds. 

The  class  rates  in  cents  per  hundred  pounds  (except  class 
F,  which  is  per  bbl.)  to  Troy,  Montgomery  and  Columbus  from 
Louisville,  Cincinnati  and  St.  Louis,  are  given  in  the  following 
table: 


From  Louisville,  Ky.,  to 

Troy,  Ala 

Montgomery,  Ala.  . 
Columbus,  Ga 

Fro7n  Cincinnati,  O.,  to 

Troy,  Ala 

Montgomery,  Ala.  . 
Columbus,  Ga.   .     . 

From  St.  Louis,  Mo.,  to 

Troy,  Ala 

Montgomery,  Ala.  .     . 
Columbus,  Ga 


Classes 


140 

98 
107 


150 
108 
117 


168 
126 
135 


130 

92 
92 


140 
102 
102 


153 
115 
115 


113 


81 


123 

88 
91 


133 

98 

101 


103 
71 
76 


109 

77 
82 


75i 

52 

56 


82i 

59 

63 


87i 

64 

68 


The  local  class  rates  in  cents  per  hundred  pounds  (except 
class  F,  whicli  is  per  bbl.)  from  Montgomery  and  Columbus, 
respectively,  to  Troy,  are  as  follows : 


Classes 

1 

2 

3 

4 

5 

6 

A 

B 

C 

D 

E 

H 

F 

From  Montgomery  to  Troy 
From  Columbus  to  Troy 

49 

58 

46 
55 

40 

48 

33 
39 

27 
31 

21 
24 

19 
22 

21 
24 

16 

19 

15 

17 

27 
31 

33 
39 

per 
bbl. 

32 
38 

It  was  testified  at  the  hearing  by  Mr.  Bashinsky,  a  witness 
for  the  complainant,  that  on  goods  shipped  on  through  bills  of 
lading  from  Louisville  and  the  West  to  Troy,  the  Troy  merchant 


THE  ALABAMA  MIDLAND   CASE 


369 


is  charged  the  full  local  rate  from  Montgomery  to  Troy,  and  the 
counsel  for  the  Alabama  Midland  states  in  his  brief,  that  "  the 
through  rate  from  Troy  to  any  western  market  is  made  up  by 
adding  the  local  rate  from  Troy  to  Montgomery  to  the  through 
rate  from  Montgomery  to  the  West."  From  a  comparison  of  the 
above  local  rates  with  the  difference  between  the  rates  from 
Louisville  and  the  other  cities  named  to  Montgomerj^  and  Troy, 
respectively,  it  will  be  found  that  this  is  true  only  as  to  rates 
on  goods  of  class  6.  The  difference  between  the  class  6  rate 
to  Montgomery  and  that  to  Troy  from  all  these  points  is  21  cts., 
which  is  the  local  rate  on  that  class  from  Montgomery  to  Troy. 
On  the  other  classes  the  local  rate  from  Montgomery  to  Troy 
exceeds  the  proportion  of  the  through  rate  between  those  points 
as  follows: 


Classes 

1 

3 

3 

4 

5 

6 

A 

B 

C 

D 

E 

H 

F 

Excess  of  local  rate 
through 

over 

7 

8 

5 

1 

H 

— 

2 

2 

3 

3 

6 

7 

e 

The  distance  from  Louisville  to  Montgomery  over  the  Louis- 
ville &  Nashville  road  is  490  miles  and  from  Montgomery  to 
Troy  over  the  Alabama  Midland,  52  miles.  The  following  table 
shows  the  mileage  rate  on  the  different  classes  in  mills  per  hun- 
dred pounds  yielded  by  the  through  rate  from  Louisville  to  Mont- 
gomery and  by  the  additional  charge  on  through  shipments  from 
Louisville  to  Troy  for  the  haul  from  Montgomery  to  Troy : 


Classes 

1 

2 

3 

4 

5 

6 

A 

B 

C 

D 

E 

H 

F 

Louisville    to 

Montgomery 

2 

1.8 

1.6 

1.3 

1.06 

.83 

.57 

.63 

.49 

.40 

.98 

.67 

.40 

Montgomery 

to  Troy   .     . 

8 

7.1 

6.7 

5.9 

3.8 

4 

2.6 

3.6 

2.5 

2.3 

4 

6 

2.5 

:;7(i  KAiLWAv  rPvOr.LEMS 

The  testimony  is  that  the  Troy  merchant  gets  the  most  of  his 
heavy  goods  from  the  West.  The  class  6  (on  which  the  through 
rate  from  Louisville,  St.  Louis  &  Cincinnati  to  Troy  is  made  by 
the  addition  of  the  local  from  Montgomery  to  Troy)  embraces 
sugar,  coffee,  flour,  buckwheat,  animal  food,  cement,  axle  and  car 
grease,  green  hides,  iron  architecture,  agricultural  implements, 
nails,  spikes,  and  many  other  heavy  as  well  as  light  articles  in 
constant  demand,  too  numerous  to  be  set  forth  here.  Classes  4 
and  B  on  which  the  diiference  between  the  local  rate  and  pro- 
portion of  through  rate  from  INIontgomery  to  Troy  as  shown 
above  is  only  1  and  2  cents,  are  applied,  the  former,  among 
numerous  other  articles,  to  machinery  of  all  kinds,  agricultural 
implements,  earthenware,  moldings,  engines,  castings,  axes, 
cotton-seed-oil  mills,  dry  hides,  window  glass,  ale,  beer,  porter, 
canned  beef  and  poik,  canned  fruit  and  potatoes;  and  the  lat- 
ter, among  many  other  articles,  to  salted  beef,  pork  and  bacon. 
It  seems  probable,  that  the  statement  above  referred  to,  made 
by  the  witness  and  counsel,  that  the  through  rate  from  Louis- 
ville and  the  west  via  Montgomery  to  Troy  is  made  up  of  the 
rate  to  Montgomery  plus  the  local  on  to  Troy,  is  substantially 
true  as  to  the  g^oods  constitutinof  the  bulk  of  the  traffic  from 
those  points  to  Troy.  When  the  mileage  rate  from  Louisville 
(which  point  is  taken  as  an  illustration)  to  Montgomery,  is  com- 
pared with  that  from  Montgomery  on  to  Troy,  it  seems  clear 
that  the  rate  to  Troy  on  all  the  classes  is  made  from  Mont- 
gomery as  a  "  basing  point."  This  comparison,  it  will  appear 
from  the  table  given  above,  shows  that  the  proportion  of  the 
rate  from  Montgomery  to  Troy  is  from  four  to  seven  times  as 
large  per  mile  as  that  from  Louisville  to  Montgomery. 

The  following  table  shows  the  sum  of  the  rates  on  class  goods 
from  Louisville  to  Montgomery  and  Troy,  respectively,  plus  the 
rates  from  those  points  on  reshipment  to  Brundidge,  Ozark,  and 
Dothan : 


THE  ALABAMA  MIDLAND  CASE  371 

In  Cents  per  100  Pounds,  except  Class  F,  which  is  per  Barrel 


From  Louisville,  Ky.,  to 


Brundidge,  Ala.,  reshipped 

from  Montgomery,  Ala.  . 
Brundidge,  Ala.,  reshipped 

from  Troy,  Ala.  .  .  . 
Ozark,  Ala.,  reshipped  from 

Montgomery 

Ozark,  Ala.,  reshipped  from 

Troy,  Ala 

Dothan ,  Ala. ,  reshipped  from 

Montgomery 

Dothan,  Ala. ,  reshipped  from 

Troy,  Ala 


Classes 


146 

168 
156 
176 
162 
188 


136 

154 

144 

161i 

147 

174 


117 
135 
122 
143 

125 
152 


98 
115 
103 
122 
106 
180 


81 
93^ 
84 
95i 
88 
104i 


52 

59 

54 

59i 

57 

69 


per 
bbl. 


Brundidge,  Ozark  and  Dothan  are  towns  and  stations  on  the 
Alabama  Midland  Railway,  all  east  of  Troy  and  shipments  to 
them  over  that  road  from  Montgomery  pass  through  Troy. 
Brundidge  is  17  miles  from  Troy  and  69  from  Montgomery; 
Ozark,  40  miles  from  Troy  and  92  from  Montgomery ;  and 
Dothan,  68  miles  from  Troy  and  120  from  Montgomery. 

The  sum  of  the  rates  from  Louisville  to  Columbus  and  Troy, 
respectively,  plus  the  rates  on  reshipments  from  those  cities  to 
Brantley,  in  cents  per  100  lbs.,  except  class  F,  which  is  per  bbl., 
is  as  follows  : 


Classes 

1 

3 

3 

4 

6 

6 

A 

B 

c 

D 

E 

F 

Brantley,  Ala.,  reshipped 
from  Columbus .     .     . 

Brantley,  Ala.,  reshipped 
from  Troy     .... 

1.73 
1.76 

1.53 
1.64 

1.32 
1.43 

1.10 
1.19 

90 

73 

78 

52 
60 

63 
66 

50 
50 

44 
44 

84 
89 

per 
bbl. 

92 
92 

Brantley  is  on  the  Georgia  Central  road  26  miles  south  of 
Troy  and  111  miles  from  Columbus,  and  goods  shipped  from 
Columbus  to  Brantley  over  that  road  pass  through    i'roy.     A 


;}72  RAILWAY  PROBLEMS 

like  disparity  in  rates  on  reshipments  prevails  as  to  points 
west  of  Troy  on  the  Alabama  Midland  and  north  of  Troy  on 
the  Georgia  Central,  the  distances  of  which  from  Troy  are  much 
less  than  from  either  Montgomery  or  Columbus ;  and  the  situ- 
ation in  this  respect  is  the  same,  when  the  shipments  originate 
at  Cincinnati,  and  other  Ohio  river  points',  and  at  St.  Louis,  as 
when  they  come  from  Louisville. 

The  fact  that  the  sum  of  the  rates  from  points  of  origin  to 
points  of  destination,  as  shown  in  the  above  tables,  on  reship- 
ment  from  Montgomery,  Columbus  and  Troy,  are  greater  in 
cases  of  such  reshipments  from  Troy  than  from  Montgomery 
and  Columbus,  is  attributed  by  the  complainant  to  alleged  rela- 
tively unjust  through  rates  to  Troy  as  compared  with  those  to 
Montgomery  and  Columbus.  There  is  no  allegation  and  no  proof 
that  the  rates  to  Montgomery  and  Columbus  are  unreasonable  in 
themselves.  The  through  rate  to  Troy  is,  therefore,  the  object 
of  attack. 

The  differences  in  rates  as  against  Troy,  it  will  be  noted,  are 
much  smaller  on  reshipments  from  Columbus  than  on  reship- 
ments from  Montgomery,  and  the  local  rates  from  Columbus  to 
Troy  are  much  greater  than  the  difference  between  the  through 
rates  to  Columbus  and  those  to  Troy.  It  is  not  shown  that  there 
are  through  rates  from  Louisville,  St.  Louis  and  Ohio  river  points 
via  Columbus  to  Troy  based  on  the  Columbus  rate,  and  the  natural 
course  of  the  traffic  from  those  points  to  Troy  appears  to  be  via 
Montgomery.  As  before  stated,  the  through  rates  to  Troy  are 
based  on  the  Montgomery  rates  and  in  making  them  Montgom- 
ery is  treated  as  a  "  trade  center"  or  "  basing  "  point  and  Troy 
as  a  local.  This  is  conceded  on  the  part  of  the  defendants.  The 
vice  in  the  through  rate  to  Troy,  if  any,  arises  from  this  fact 
and  from  the  consequently  greatly  disproportionate  charge  for 
the  haul  from  Montgomery  to  Troy,  when  compared  with  that 
from  Louisville  and  the  west  to  Montgomery. 

The  "trade  center"  or  "basing  point"  system  has  been  in 
many  cases  pronounced  unlawful  by  this  Commission,  ...  In  the 
Louisville  &  Nashville  case,  it  is  said  in  this  connection,  that 
the  Act  to  Regulate  Commerce  "  aims  at  equality  of  right  and 


THE  ALABAMA  MIDLAND  CASE  373 

privilege,  not  less  between  towns  than  between  individuals,  and 
will  no  more  sanction  preferential  rates  for  the  purpose  of  per- 
petuating distinctions  than  of  creating  them  ;  "  and  in  the  Martin 
case,  the  Statute  is  declared  to  be  one  "  enacted  in  the  interest 
of  equality  as  between  large  and  small  interests,"  under  which 
"there  can  be  no  unjust  discrimination  in  giving  to  large  and 
small  towns  relatively  equal  rates."  It  is  further  said  in  the  latter 
case,  that  "  a  fatal  .difficulty  with  the  theory  that  a  trade  center 
as  such  is  entitled  to  specially  favorable  rates  is  found  in  the 
fact,  that  it  is  in  conflict  with  the  spirit  and  purpose  of  the  Act 
to  Regulate  Commerce  —  one  of  the  reasons  for  the  passage  of 
which  was,  that  by  means  of  rebates  and  other  contrivances, 
large  towns  and  heavy  dealers  secured  advantages  which  gave 
them  a  practical  monopoly  of  markets  and  shut  out  the  small 
towns  and  small  dealers."  In  a  recent  decision  by  the  Supreme 
Court  of  the  United  States  in  a  case  brought  up  from  the  U.  S. 
Circuit  Court,  for  the  District  of  Colorado  ( Union  Pac.  R.  Co.  v. 
aoodridge,  149  U.  S.  680,  37  L.  ed.  896)  Mr.  Justice  Brown,  in 
speaking  of  the  purpose  of  the  Colorado  act  under  consideration 
as  being  the  same  as  to  intrastate  commerce  as  that  of  the  Act  to 
Regulate  Commerce  as  to  interstate  commerce,  says  very  forcibl}^ 
that  it  was  designed  "  to  cut  up  by  the  roots  the  entire  system 
of  rebates  and  discriminations  in  favor  of  particular  localities, 
special  enterprises,  or  favored  corporations,"  and  pertinently  re- 
fers to  the  fact,  that  carriers  being  dependent  upon  the  will  of 
the  people  for  their  corporate  existence,  are  "  bound  to  deal 
fairly  with  the  public,  to  extend  them  reasonable  facilities  for 
the  transportation  of  their  persons  and  property,  and  to  put  all 
their  patrons  uj)on  an  absolute  equality y  .  .  .  The  fact,  therefore, 
insisted  upon  by  counsel  for  the  roads  as  a  matter  of  defense, 
that  Montgomery  is  a  much  larger  city  with  more  extensive 
business  interests  than  Troy,  and  is  and  has  been  treated  by  the 
roads  in  making  rates  to  Troy  and  other  surrounding  towns  as 
a  "trade  center"  or  "basing  point,"  is  no  justification  for  dis- 
criminations in  those  rates  in  favor  of  Montgomery. 

Water  and  rail  competition  at  Montgomery  are  also  set  up  as 
justifying  the  disproportion  in  the  rates  in  question  as  between 


RAIL\VA\'   rK013LEMS 


Trov  and  Montgomery.  Here,  as  we  have  shown  in  connection 
with  the  violations  of  tlie  long  and  short  haul  rule  of  the  Statute, 
these  defenses  are  not  sustained  by  the  proof.  Water  competi- 
tion via  the  Alabama  river,  in  order  to  control  rates  from  St. 
Louis  and  Louisville,  Cincinnati  and  other  Ohio  river  points, 
on  traffic  from  those  cities  stoi)ping  at  Montgomery,  must,  it  is 
obvious,  grow  out  of  transportation  of  such  traffic  via  Mobile  up 
the  river  to  Montgomery.  The  carriage  of  goods  by  river  from 
or  via  Montgomery  to  Mobile  would  be  limited  in  its  effect  to 
rates  to  the  latter  city.  Water  transportation  may  be  possible 
from  localities  on  the  Ohio  and  Mississippi  rivers  via  those 
rivers  to  the  gulf  at  New  Orleans,  on  the  gulf  to  the  Alabama 
river  at  Mobile,  and  up  that  river  to  Montgomery,  and  the 
Mol)ile  &  Ohio  Railroad  carries  freight  from  St.  Louis  to  Mobile, 
which  might  be  transported  thence  up  the  Alabama  river  to 
Montgomery.  No  competition  by  either  of  these  routes  is  shown 
in  this  case  on  traffic  from  St.  Louis  or  Ohio  river  points  to 
Montgomery,  and  it  does  not  seem  probable  that  such  competi- 
tion of  controlling  force  is  likely  to  arise.  That  it  does  not  now 
exist  would  appear  to  be  indicated  by  the  lower  rates  from  St. 
Louis,  Cincinnati  and  Louisville  to  Mobile  than  to  Montgomery 
at  present  prevailing  as  shown  in  the  following  table : 

Rates  in  Cents  pek  100  Pounds,  except  Class  F,  which  is  per  Barrel 


Classes 

Distances 

From 

1 

2 

3 

4 

5 

6 

A 

B 

c 

D 

E 

H 

F 

644  miles  »taM.&  0.1 

St.  Ix)uis  to  Mobile    .    .    . 

90 

75 

ft5 

50 

40 

35 

25 

25 

25 

20 

28 

25 

45 

805  miles  rJ«L.& X.I 

G25  miles  via  h.  &  N. 

St.  Louis  to  ISIontKomery  . 

126 

115 

98 

77 

64  51 

35 

.39 

31 

25 

56 

43 

54 

GG9  miles  via  L.  &  N. 

Louisville  to  Mobile  .     .     . 

90 

75 

65 

50  40  35 

25 

25 

25 

20 

28 

25 

45 

490  miles  via  L.  &  X. 

Louisville  to  Montgomery 

98 

92 

78 

63'  52   41 

28 

31 

24 

20 

48 

33 

40 

779  miles  via  L.  &  X. 

Cincinnati  to  Mobile .     .     . 

98 

83 

73  54  44  39 

28 

27 

27 

22 

31 

28 

49 

600  miles  riaL.  &X. 

Cincinnati  to  Montgomery 

108 

102 

88  71  59  47 

32 

33 

26 

22 

52  37 

44 

Although  over  the  lines  of  the  Louisville  «fe  Nashville  Com- 
pany the  distances  from  all  three  of  the  ai)ove  cities  to  Mobile  is 
180  miles  greater  than  to  Montgomery,  and  the  haul  to  Mobile  is 
through  Montgomery,  the  rates  to  the  latter  are  materially  higher 


THE  ALABAMA  MIDLAND  CASE  375 

than  to  the  former.  The  higher  rates  to  Montgomery  than  to 
Mobile  shown  in  the  above  table  seem  inconsistent  with  the 
claim  that  the  rates  to  Montgomery  are  controlled  by  water 
competition  via  Mobile  up  the  Alabama  river  to  Montgomery. 

********* 

Our  conclusion  on  this  branch  of  the  case  is,  that  the  through 
class  rates  from  Louisville,  St.  Louis,  Cincinnati  and  the  West 
to  Troy  are  relatively  unjust  to  that  city,  when  compared  with 
those  to  Montgomery,  and  that  this  injustice  arises  from  the 
practice  of  basing  the  Troy  rates  on  the  rates  to  Montgomery  as 
a  "  trade  center." 

The  question  remains  to  be  determined,  what  the  rates  to 
Troy  shall  be.  In  arriving  at  a  conclusion  on  this  point,  no 
light  is  furnished  by  proof  of  cost  of  service  or  other  matters 
proper  to  be  considered  in  determining  what  rates  are  just  and 
reasonable  from  the  standpoint  both  of  the  carrier  and  shipper. 
If  there  is  an  expense  incident  to  the  continuation  of  the  through 
haul  to  Troy,  which  calls  for  and  justifies  exceptional  rates,  the 
burden,  as  we  have  seen,  is  upon  the  carrier  to  show  it.  The 
roads,  however,  do  not  claim  that  there  is  anything  in  the  nature 
of  the  service  of  transportation  to  Troy  which  justifies  the  dis- 
proportionate rates  charged  to  that  city,  but  base  their  defense 
of  those  rates  on  another  and  distinct  ground  (which  we  hold 
not  to  be  established)  namely,  dissimilarity  of  circumstances 
and  conditions  resulting  from  water  and  rail  competition  at 
Montgomery.  In  the  absence  of  proof  of  exceptional  conditions, 
the  transportation  from  Montgomery  to  Troy,  including  termi- 
nal expenses,  will  be  presumed  to  be  not  more  costly  to  the 
carrier  than  for  like  distances  in  the  same  or  like  territory.  On 
examination  we  find,  that  the  class  rates  from  Louisville,  Cin- 
cinnati and  St.  Louis  and  Oliio  river  points  generally,  are  the 
same  to  Columbus,  Eufaula  and  Opelika.  The  distances  from 
Louisville  and  St.  Louis  to  Columbus  l)y  the  shoitest  available 
route  (that  via  Birmingham  and  Opelika  over  the  Columbus  & 
Western  road)  are  9  miles  greater  and  by  the  routes  via  Mont- 
gomery are  aljout  42  miles  greater  than  to  Troy.  The  distance 
from  Cincinnati   to    Columbus   by  the   shortest  route   appears 


U\\]A\\\    IMvOm.EMS 


l(t  he  about  14  miles  less  than  to  Troy.  The  distances  to  Eufaula 
are  greater  than  to  Troy,  and  to  Opelika  they  are  somewhat 
less.  The  distances  from  the  cities  named  to  Columbus  and 
Eufaula  being  on  the  average  greater  than  to  Troy  and  other 
things  being  equal,  the  rate  to  Troy  should,  if  anything,  be 
slightly  less  than  to  those  cities.  No  substantial  dissimilarity 
of  circumstances  and  conditions  justifying  a  higher  rate  to  Troy, 
has  been  attempted  to  be  shown.  The  class  rates  in  cents  per 
hundred  pounds  (except  class  F,  which  is  per  bbl.)  to  Columbus, 
Eufaula  and  Opelika,  and  to  Troy,  from  Louisville,  and  the 
excess  of  the  Troy  rates  over  those  to  Columbus,  Eufaula  and 
Opelika  are  given  in  the  following  table : 


Classes 

1 

2 

3 

4 

5 

6 

A 

B 

C 

D 

E 

H 

F 

From  Louisville  to  Columbus, 

per 
bbl. 

Eufaula,  and  Opelika  .     . 

107 

92 

81 

68 

56 

46 

28 

36 

29 

25 

50 

55 

50 

From  Louisville  to  Troy  .     . 

140 

130 

113 

95 

75i 

62 

45 

50 

37 

32 

69 

59 

66 

Excess  of  Troy  rates  .     .     . 

33 

38 

32 

27 

m 

16 

17 

14 

8 

7 

19 

4 

16 

The  excess  of  the  Troy  rate  is  the  same  under  the  rates  from 
Cincinnati  and  St.  Louis. 


Columbus  and  Eufaula  are  located  in  or  are  contiguous  to 
the  territory  in  which  Troy  is  situated,  and  the  former,  at  least, 
is  in  active  competition  with  Troy  for  business  in  the  country 
immediately  around  Troy.  We  are  of  the  opinion  that  the  class 
rates  to  Troy  from  Louisville,  Cincinnati  and  St.  Louis  should 
be  at  least  as  low  as  those  above  gfiven  to  Columbus  and  Eufaula. 

It  is  claimed  on  the  part  of  the  roads,  that  tlie  establishment 
of  lower  rates  to  Troy  will  disarrange  and  call  for  a  readjust- 
ment of  the  rates  to  the  localities  around  Troy  in  order  to  pre- 
vent unjust  discrimination  in  favor  of  Troy  and  against  such 
localities.  It  appears  from  the  tariffs  on  file  with  the  Commis- 
sion, that  the  through  rates  to  these  points  around  Troy  are 
made  on  the  basis  of  the  rates  to  Montgomery  plus  the  local 


THE  ALABAJVIA  MIDLAND  CASE  377 

rates  from  Montgomery  on  —  in  other  words,  that  Montgomery 
is  given  the  undue  advantage  of  a  "  trade  center "  as  against 
these  points.  This  being  the  case,  these  rates  now  call  for 
readjustment  with  a  view  of  remedying  the  unjust  discrimina- 
tion thus  appearing.  The  adjustment  of  the  rates  to  these  points 
so  as  to  make  them  conform  to  the  reduced  rates  which  we  have 
ordered  for  Troy,  will  tend  to  bring  them  in  line  with  the  law 
and  do  away  with  the  unjust  discrimination  in  favor  of  INIont- 
gomery  already  existing  under  them.  It  certainly  cannot  be 
held  to  be  a  valid  objection  to  the  correction  of  unlawful  rates 
to  one  locality,  that  it  involves  a  like  correction  as  to  other  local- 
ities. Unjust  discrimination  as  between  localities  or  individuals 
cannot  be  essential  to  the  business  prosperity  of  the  roads ;  on 
the  contrary,  we  believe  that  in  the  end,  if  not  immediately, 
their  financial  welfare  would  be  promoted  by  the  application  in 
the  matter  of  rate  making  of  the  principle  of  absolute  fairness 
as  between  all  interests,  large  and  small,  enjoined  by  the  Statute. 
Rates  should  in  the  first  instance  be  fixed  upon  a  fairly  remu- 
nerative basis  and  then  so  applied  as  to  result  in  no  undue 
advantage  or  disadvantage  to  any  interest.  It  will  devolve  upon 
the  roads  to  make  whatever  changes  in  rates  to  surrounding 
towns  may  be  incidental  to,  and  a  necessary  consequence  of, 
compliance  in  good  faith  with  our  order  in  reference  to  the 
rates  to  Troy. 

In  pursuance  of  the  conclusions  arrived  at  in  this  case,  it  is 
ordered,  that  the  roads  participating  in  the  traffic  involved  cease 
and  desist,  (1),  from  charging  and  collecting  on  class  goods 
shipped  from  Louisville,  St.  Louis  and  Cincinnati  to  Troy  a 
higher  rate  than  is  now  charged  and  collected  on  such  shipments 
to  Columbus  and  Eufaula  ;  (2),  from  chai'ging  and  collecting  on 
cotton  shipped  from  Troy  via  Montgomery  to  New  Orleans  a 
higher  through  rate  than  50  cts.  per  hundred  pounds  ;  (3),  from 
charging  and  collecting  on  shipments  of  cotton  from  Troy  for 
export  via  the  Atlantic  seaports,  Brunswick,  Savannah,  Charles- 
ton, West  Point  and  Norfolk,  a  higher  rate  to  those  ports  than 
is  charged  and  collected  on  such  shipments  from  Montgomery; 
(4),  from  charging  and  collecting  on  cotton  shipped  from  Troy 


378  KAILWAV   PKOBLEMS 

to  Hruiiswick,  Savannah  and  Charleston,  a  higher  rate  than  is 
cliarged  and  collected  on  such  shipments  from  Montgomery 
through  Troy  to  those  ports ;  (5),  from  charging  and  collecting 
on  cliujs  goods,  shipped  from  New  York,  Baltimore,  and  the 
northeast,  to  Troy,  a  higher  rate  than  is  charged  and  collected 
on  such  shipments  to  Montgomery  ;  and  (6),  from  charging  and 
collecting  on  phosphate  rock  shipped  from  the  South  Carolina 
and  Florida  fields  to  Troy  a  higher  rate  than  is  charged  and 
collected  on  such  shipments  through  Troy  to  Montgomery. 


Interstate  Commerce  Commission 

V. 

Alabama  Midland  Railway  Co.,  et  al.  ^ 

Long  and  Short  Haul 

******** 
Whether  competition  between  lines  of  transportation  to  Mont- 
gomery, Eufaula,  and  Columbus  justifies  the  giving  to  those 
cities  a  preference  or  advantage  in  rates  over  Troy,  and,  if  so, 
whether  such  a  state  of  facts  justifies  a  departure  from  equality 
of  rates  without  authority  from  the  Interstate  Commerce  Com- 
mission, under  the  proviso  to  the  fourth  section  of  the  act,  are 
questions  of  construction  of  the  Statute,  and  are  to  be  determined 
before  we  reach  the  question  of  fact  in  this  case. 

It  is  contended  in  the  briefs  filed  on  behalf  of  the  Interstate 
Commission  that  the  existence  of  rival  lines  of  transportation, 
and  consequently  of  competition  for  the  traffic,  are  not  facts  to 
be  considered  by  the  Commission  or  by  the  courts  when  deter- 
mining whether  property  transported  over  the  same  line  is  car- 
ried under  "  substantially  similar  circumstances  and  conditions," 
as  that  phrase  is  found  in  the  fourth  section  of  the  act. 

1  Known  as  the  "  Alabama  Midland"  case,  stated  in  the  preceding  chapter. 
Decided  by  the  Supreme  Court  of  the  United  States,  November  8,  1897.  168 
U.  S.  144. 


THE  ALABAJMA  MIDLAND  DECISION  379 

Such,  evidently,  was  not  the  construction  put  upon  this  pro- 
vision of  the  Statute  by  the  Commission  itself  in  the  present 
case,  for  the  record  discloses  that  the  Commission  made  some 
allowance  for  the  alleged  dissimilarity  of  circumstances  and  con- 
ditions, arising  out  of  competition  and  situation,  as  affecting 
transportation  to  Montgomery  and  Troy,  respectively,  and  that 
among  the  errors  assigned  is  one  complaining  that  the  court 
erred  in  not  holding  that  the  rates  prescribed  by  the  Commission 
in  its  order  made  due  allowance  for  such  dissimilarity. 

So,  too,  in  case  In  re  Louisville  ^  N.  R.  Co.,  1  Inters.  Com- 
merce Com.  R.  77,  in  discussing  the  long  and  short  haul  clause, 
it  was  said  by  the  Commission,  per  Judge  Cooley,  that  "it  is 
impossible  to  resist  the  conclusion  that  in  finally  rejecting  the 
'long  and  short  haul  clause'  of  the  House  Bill,  which  pre- 
scribed an  inflexible  rule,  not  to  be  departed  from  in  any  case, 
and  retaining  in  substance  the  fourth  section  as  it  had  passed 
the  senate,  both  houses  understood  that  they  were  not  adopting 
a  measure  of  strict  prohibition  in  respect  to  charging  more  for 
the  shorter  than  for  the  longer  distance,  but  that  they  were, 
instead,  leaving  the  door  open  for  exceptions  in  certain  cases, 
and,  among  others,  in  cases  where  the  circumstances  and 
conditions  of  the  traffic  were  affected  by  the  element  of  com- 
petition, and  where  exceptions  might  be  a  necessity  if  the  com- 
petition was  to  continue.  And  water  competition  \\;as,  beyond 
doubt,  especially  in  view." 

It  is  no  doubt  true  that  in  a  later  case  {Railroad  Commission 
of  Greorgia  v.  Clyde  S.  S'.  Co.,  5  Inters.  Commerce  Com.  R. 
326)  the  Commission  somewhat  modified  their  holding  in  the 
Louisville  &  Nashville  Railroad  Company  Case,  just  cited,  by 
attempting  to  restrict  the  competition  that  it  is  allowable  to 
consider  to  the  cases  of  competition  with  water  carriers,  com- 
petition with  foreign  railroads,  and  competition  with  railroad 
lines  wholly  in  a  single  state  ;  but  the  principle  that  competition 
in  such  cases  is  to  be  considered  is  affirmed. 

That  competition  is  one  of  the  most  obvious  and  effective 
circumstances  that  make  the  conditions  under  which  a  long  and 
short   haul  is  performed  substantially  dissimilar,  and  as  such 


380  KAIL\\A^    PKOl'.LKMS 

must  have  been  in  the  I'onteiuphiliou  of  Congress  in  the  passage 
of  the  Act  to  Reguhite  Commerce,  has  been  hehl  by  many  of 
the  circuit  courts.        ****** 

In  order  further  to  guard  against  any  misapprehension  of 
the  scope  of  our  decision,  it  may  be  well  to  observe  that  we  do 
not  hold  that  the  mere  fact  of  competition,  no  matter  what  its 
character  or  extent,  necessarily  relieves  the  carrier  from  the 
restraints  of  the  third  and  fourth  sections,  but  only  that  these 
sections  are  not  so  stringent  and  imperative  as  to  exclude  in  all 
cases  the  matter  of  competition  from  consideration,  in  deter- 
mining the  questions  of  "  undue  or  unreasonable  preference  or 
advantage,"  or  what  are  "  substantially  similar  circumstances 
and  conditions."  The  competition  may  in  some  cases  be  such 
as,  having  due  regard  to  the  interests  of  the  public  and  of  the 
carrier,  ought  justly  to  have  effect  upon  the  rates,  and  in  such 
cases  there  is  no  absolute  rule  which  prevents  the  Commission 
or  the  courts  from  taking  that  matter  into  consideration. 

It  is  further  contended  on  behalf  of  the  appellant  that  the 
courts  below  erred  in  holding,  in  effect,  that  competition  of 
carrier  with  carrier,  both  subject  to  the  Act  to  Regulate  Com- 
merce, will  justify  a  departure  from  the  rule  of  the  fourth  sec- 
tion of  the  act  without  authority  from  the  Interstate  Commerce 
Commission,  under  the  proviso  to  that  section. 

In  view  of  the  conclusion  hereinbefore  reached,  the  proposition 
comes  to  this :  That  when  circumstances  and  conditions  are  sub- 
stantially dissimilar  the  railway  companies  can  only  avail  them- 
selves of  such  a  situation  by  an  application  to  the  Commission. 

The  language  of  the  proviso  is  as  follows : 

That  upon  application  to  the  Commission  ajipointed  under  the  provisions 
of  this  act,  such  common  carrier  may,  in  special  cases,  after  investigation 
l)y  the  Commission,  be  authorized  to  charge  less  for  longer  than  shorter 
distances  for  the  transportation  of  persons  or  property,  and  the  Commission 
may  from  time  to  time  prescribe  the  extent  to  which  such  designated  com- 
mon carrier  may  be  relieved  from  the  operation  of  this  section  of  this  act. 

The  claim  now  made  for  the  Commission  is  that  the  only 
body  which  has  the  power  to  relieve  railroad  companies  from 
the  operation  of  the  long  and  short  haul  clause  on  account  of 


THE  ALABAMA  MIDLAND  DECISION  381 

the  existence  of  competition,  or  any  other  similar  element  which 
would  make  its  application  unfair,  is  the  Commission  itself, 
which  is  bound  to  consider  the  question,  upon  application  by 
the  lailroad  company,  but  whose  decision  is  discretionary  and 
unreviewable. 

The  first  observation  that  occurs  on  this  proposition  is  that 
there  appears  to  be  no  allegation  in  the  bill  or  petition  raising 
such  an  issue.  The  gravamen  of  the  complaint  is  that  the 
defendant  companies  have  continued  to  charge  and  collect  a 
greater  compensation  for  services  rendered  in  transportation  of 
property  than  is  prescribed  in  the  order  of  the  Commission.  It 
was  not  claimed  that  the  defendants  were  precluded  from  show- 
ing in  the  courts  that  the  difference  of  rates  complained  of  was 
justified  by  dissimilarity  of  circumstances  and  conditions,  by 
reason  of  not  having  applied  to  the  Commission  to  be  relieved 
from  the  operation  of  the  fourth  section. 

Moreover,  this  view  of  the  scope  of  the  proviso  to  the  fourth 
section  does  not  appear  to  have  ever  been  acted  upon  or  enforced 
by  the  Commission.  On  the  contrary,  in  the  case  of  In  re  Louis- 
ville ^  N.  R.  Co.  V.  Interstate  Commerce  Commission.,  1  Inters. 
Commerce  Cora.  R.  57,  the  Commission,  through  Judge  Cooley, 
said,  in  speaking  of  the  effect  of  the  introduction  into  the  fourth 
section  of  the  words,  "  under  substantially  similar  circumstances 
and  conditions,"  and  of  the  meaning  of  the  proviso : 

That  which  the  Act  does  not  declare  unlawful  must  remain  lawful,  if  it 
was  so  before  ;  and  that  which  it  fails  to  forbid  the  carrier  is  left  at  liberty 
to  do,  without  permission  of  any  one.  *  *  *  The  charging  or  receiving 
the  greater  compensation  for  the  shorter  than  for  the  longer  haul  is 
seen  to  be  forbidden  only  when  both  are  under  substantially  similar  cir- 
cumstances and  conditions ;  and  therefore  if  in  any  case  the  carrier,  with- 
out first  obtaining  an  order  of  relief,  sliall  depart  from  the  general  rule, 
its  doing  so  will  not  alone  convict  it  of  illegality,  since,  if  the  circumstances 
and  conditions  of  the  two  hauls  are  dissimilar,  the  Statute  is  not  violated. 
*  *  *  Beyond  question,  the  carrier  must  judge  for  itself  what  are  the 
"  substantially  similar  circumstances  and  conditions  "  which  preclude  the 
special  rate,  rebate,  or  drawback  which  is  made  unlawful  by  the  second 
section,  since  no  tribunal  is  empowered  to  judge  for  it  until  after  the 
carrier  has  acted,  and  then  only  for  the  purpose  of  determining  whether 
its  action  constitutes  a  violation  of  law.    The  carrier  judges  on  peril  of 


382  KAII.WAV    PROBLEMS 

the  c(>nsequences,  but  the  special  rate,  rebate,  or  drawback  which  it  grants 
is  not  illegal  when  it  turns  out  that  the  circumstances  and  conditions  were 
not  such  as  to  forbid  it ;  and,  as  Congress  clearly  intended  this,  it  must 
also,  when  using  the  same  words  in  the  fourth  section,  have  intended  that 
the  carrier  whose  privilege  was  in  the  same  way  limited  by  them  should 
in  the  same  way  act  u2>on  its  judgment  of  the  limiting  circumstances  and 
conditions. 

.  .  .  We  are  unable  to  suppose  that  Congress  intended,  by  the 
fourth  section  and  the  proviso  thereto,  to  forbid  common  carriers, 
in  cases  where  the  circumstances  and  conditions  are  substan- 
tially dissimilar,  from  making  different  rates  until  and  unless 
the  Commission  shall  authorize  them  so  to  do.  Much  less  do  we 
think  that  it  was  the  intention  of  Congress  that  the  decision  of 
the  Commission,  if  applied  to,  could  not  be  reviewed  by  the 
courts.  Tlie  provisions  of  section  16  of  the  act,  which  author- 
ize the  court  to  "  proceed  to  hear  and  determine  the  matter 
speedily  as  a  court  of  equity,  and  without  the  formal  plead- 
ings and  proceeding  applicable  to  ordinary  suits  in  equity,  but 
in  such  manner  as  to  do  justice  in  the  premises,  and  to  this 
end,  such  court  shall  have  power,  if  it  think  fit,  to  direct  and 
prosecute  in  such  mode  and  by  such  persons  as  it  may  appoint, 
all  such  inquiries  as  the  court  may  think  needful  to  enable  it 
to  form  a  just  judgment  in  the  matter  of  such  petition,"  extend 
as  well  to  an  inquiry  or  proceeding  under  the  fourth  section  as 
to  those  arising  under  the  otlier  sections  of  the  act. 

Upon  these  conclusions,  that  competition  between  rival  routes 
is  one  of  the  matters  which  may  lawfully  be  considered  in 
making  rates,  and  that  substantial  dissimilarity  of  circumstances 
and  conditions  may  justify  common  carriers  in  charging  greater 
compensation  for  the  transportation  of  like  kinds  of  property 
for  a  shorter  than  for  a  longer  distance  over  the  same  line,  we 
are  brought  to  consider  whether,  upon  the  evidence  in  the  pres- 
ent case,  the  courts  below  erred  in  dismissing  the  Interstate 
Commerce  Commission's  complaint. 

******** 

The  Circuit  Court,  after  a  consideration  of  the  evidence, 
expressed  its  conclusion  thus : 


THE  ALABAMA  MIDLAND  DECISION  383 

In  any  aspect  of  the  case,  it  seems  impossible  to  consider  tliis  comj)laint 
of  the  Board  of  Trade  of  Troy  against  the  defendant  raih-oad  companies, 
i:)articularly  the  Midland  and  Georgia  Central  Railroads,  in  the  matter  of 
the  charges  upon  property  transported  on  their  roads  to  or  from  points 
east  or  west  of  Troy,  as  specified  and  complained  of,  obnoxious  to  the 
fourth  or  any  other  section  of  the  Interstate  Commerce  Act.  The  conditions 
are  not  substantially  the  same,  and  the  circumstances  are  dissimilar,  so 
that  the  case  is  not  within  the  Statute.  The  case  made  here  is  not  the  case 
as  it  was  made  before  the  Commission.  New  testimony  has  been  taken, 
and  the  conclusion  reached  is  that  the  bill  is  not  sustained;  that  it  should 
be  dismissed  ;   and  it  is  so  ordered.    69  Fed.  227. 

The  Circuit  Court  of  Appeals,  in  affirming  the  decree  of  the 
Circuit  Court,  used  the  following  language : 

Only  two  railroads,  the  Alabama  Midland  and  the  Georgia  Central, 
reach  Troy.  Each  of  these  roads  has  connection  with  other  lines,  parties 
hereto,  reaching  all  the  long-distance  markets  mentioned  in  these  proceed- 
ings. The  Commission  finds  that  no  departure  from  the  long  and  short 
haul  rule  of  the  fourth  section  of  the  Statute,  as  against  Troy,  as  the 
shorter  distance  point,  and  in  favor  of  Montgomery,  as  the  longer  distance 
point,  appears  to  be  chargeable  to  the  Georgia  Central.  The  rates  in  ques- 
tion, when  separately  considered,  are  not  unreasonable  or  unjust.  As  a 
matter  of  business  necessity,  they  are  the  same  by  each  of  the  railroads 
that  reach  Troy.  The  Commission  concludes  that  as  related  to  the  rates  to 
Montgomery,  Colunil)us,  and  Eufaula,  the  rates  to  and  from  Troy  unjustly 
discriminate  against  Troy,  and,  in  the  case  of  the  Alabama  Midland,  vio- 
late the  long  and  short  haul  rule. 

The  volume  of  population  and  of  business  at  Montgomery  is  many  times 
larger  than  it  is  at  Troy.  There  are  many  more  railway  lines  running  to 
and  through  Montgomery,  connecting  with  all  the  distant  markets.  The 
Alabama  river,  open  all  the  year,  is  capable,  if  need  be,  of  bearing  to  Mobile 
on  the  sea,  the  burden  of  all  the  goods  of  every  class  that  pass  to  or  from 
Montgomery.  The  competition  of  the  railway  lines  is  not  stifled,  but  is  fully 
recognized,  intelligently  and  honestly  controlled  and  regulated,  by  the  traffic 
association,  in  its  schedule  of  rates.  There  is  no  suggestion  in  the  evidence 
that  the  traffic  managers  who  represent  the  carriers  that  are  members  of  that 
association  are  incompetent,  or  under  the  bias  of  any  personal  preference 
for  ^Montgomery  or  prejudice  against  Troy,  that  has  led  them,  or  is  likely  to 
lead  them,  to  unjustly  discriminate  against  Troy.  When  the  rates  to  Mont- 
gomery were  higher  a  few  years  ago  than  tiow,  actual  active  water-line  com- 
petition by  the  river  came  in,  and  the  rates  were  reduced  to  the  level  of  the 
lowest  practical  paying  water  rates  ;  and  the  volume  of  carriage  by  the  river 
is  now  comparatively  small,  but  the  controlling  power  of  that  water  line 
remains  in  full  force,  and  must  ever  remain  in  force  as  long  as  the  river 


384  KAIL  WAV   rilOULEMS 

remains  navigable  to  its  present  capacity.  And  this  water  line  affects,  to  a 
degree  less  or  more,  all  the  shipments  to  or  from  MontgoTnery  from  or  to  all 
the  long-distance  markets.  It  would  not  take  cotton  from  Montgomery  to 
the  South  Atlantic  ports  for  export,  but  it  would  take  the  cotton  to  the 
points  of  its  ultimate  destination,  if  the  railroad  rates  to  foreign  marts 
through  the  Atlantic  ports  were  not  kept  down  to  or  below  the  level  of 
profitable  carriage  by  water  from  Montgomery  through  the  port  of  Mobile. 
The  volume  of  trade  to  be  competed  for,  the  number  of  carriers  actually 
competing  for  it,  a  constantly  open  river  present  to  take  a  large  part  of  it 
whenever  the  railroad  rates  rise  up  to  the  mark  of  profitable  water  carriage, 
seem  to  us,  as  they  did  to  the  Circuit  Court,  to  constitute  circumstances  and 
conditions  at  Montgomery  substantially  dissimilar  from  those  existing  at 
Troy,  and  to  relieve  the  carriers  from  the  charges  preferred  against  them 
by  its  board  of  trade.  We  do  not  discuss  the  third  and  fourth  contentions 
of  the  counsel  for  the  appellant,  further  than  to  say  that  within  the  limits 
of  the  exercise  of  intelligent  good  faith  in  the  conduct  of  their  business,  and 
subject  to  the  two  leading  prohibitions  that  their  charges  shall  not  be  unjust 
or  unreasonable,  and  that  they  shall  not  unjustly  discriminate  so  as  to  give 
undue  preference  or  disadvantage  to  traffic  or  persons  similarly  circum- 
stanced, the  Act  to  Regulate  Commerce  leaves  common  carriers,  as  they  were 
at  the  common  law,  free  to  make  special  rates  looking  to  the  increase  of  their 
business,  to  classify  their  traffic,  to  adjust  and  apportion  their  rates  so  as  to 
meet  the  necessities  of  commerce  and  of  their  own  situation  and  relation 
to  it,  and  generally  to  manage  their  important  interests  upon  the  same 
principles  which  are  regarded  as  sound,  and  adopted,  in  other  trades  and 
pursuits.  The  carriers  are  better  qualified  to  adjust  such  matters  than 
any  court  or  board  of  public  administration,  and,  within  the  limitations 
suggested,  it  is  safe  and  wise  to  leave  to  their  traffic  managers  the  adjusting 
of  dissimilar  circumstances  and  conditions  to  their  business.  21  C.  C.  A.  51, 
74  Fed.  715. 

The  last  sentence  in  this  extract  is  objected  to  by  the  Commis- 
sion's counsel,  as  declaring  that  the  determination  of  the  extent 
to  which  discrimination  is  justiiied  by  circumstances  and  condi- 
tions should  be  left  to  the  carriers.  If  so  read,  we  should  not  be 
ready  to  adopt  or  approve  such  a  position.  But  we  understand 
the  statement,  read  in  the  connection  in  which  it  occurs,  to  mean 
only  that,  when  once  a  substantial  dissimilarity  of  circumstances 
and  conditions  has  been  made  to  appear,  the  carriers  are,  from 
the  nature  of  the  question,  better  fitted  to  adjust  their  rates  to  suit 
such  dissimilarity  of  circumstances  and  conditions  than  courts  or 
commissions ;  and  when  we  consider  the  difliculty,  the  practical 
impossibility,  of  a  court  or  a  commission  taking  into  view  the 


THE  ALABAMA  MIDLAND  DECISION  385 

various  and  continually  changing  facts  that  bear  upon  the  question, 
and  intelligently  regulating  rates  and  charges  accordingly,  the 
observation  objected  to  is  manifestly  just.  But  it  does  not  mean 
that  the  action  of  the  carriers,  in  fixing  and  adjusting  the  rates, 
in  such  instances,  is  not  subject  to  revision  by  the  Commission 
and  the  courts,  when  it  is  charged  that  such  action  has  resulted 
in  rates  unjust  or  unreasonable,  or  in  unjust  discriminations  and 
preferences. 

Coming  at  last  to  the  questions  of  fact  in  this  case,  we  encoun- 
ter a  large  amount  of  conflicting  evidence.  It  seems  undeniable, 
as  the  effect  of  the  evidence  on  both  sides,  that  an  actual  dis- 
similarity of  circumstances  and  conditions  exists  between  the 
cities  concerned,  both  as  respects  the  volume  of  their  respective 
trade,  and  the  competition,  affecting  rates,  occasioned  by  rival 
routes  by  land  and  water.  Indeed,  the  Commission  itself  recog- 
nized such  a  state  of  facts,  by  making  an  allowance  in  the  rates 
prescribed  for  dissimilarity  resulting  from  competition ;  and  it 
was  contended  on  behalf  of  the  commission,  both  in  the  courts 
below  and  in  this  court,  that  the  competition  did  not  justify  the 
discriminations  against  Troy  to  the  extent  shown,  and  tliat  the 
allowance  made  therefor  by  the  Commission  was  a  due  allowance. 

The  issue  is  thus  restricted  to  the  question  of  the  preponder- 
ance of  the  evidence  on  the  respective  sides  of  the  controversy. 
We  have  read  the  evidence  disclosed  by  the  record,  and  have 
endeavored  to  weigh  it  with  the  aid  of  able  and  elaborate  discus- 
sions by  the  respective  counsel. 

No  useful  purpose  would  be  served  by  an  attempt  to  formally 
state  and  analyze  the  evidence,  but  the  result  is  tliat  we  are  not 
convinced  that  the  courts  below  erred  in  their  estimate  of  the 
evidence,  and  that  we  perceive  no  error  in  the  principles  of  law 
on  Avhich  they  proceeded  in  the  application  of  the  evidence. 

The  decree  of  the  Circuit  Court  of  Appeals  is  accordingly 
affirmed. 

Mr.  Justice  Harlan,  dissenting: 

I  dissent  from  the  opinion  and  judgment  in  this  case.  Taken 
in  connection  with  other  decisions  defining  the  powers  of  the 


r)S6  "RAITAVAV   7>R0P,LEMS 

Interstate  Commerce  Commission,  the  present  decision,  it  seems 
to  me,  goes  far  to  make  that  Commission  a  useless  body,  for  all 
practical  puiposcs,  and  to  defeat  many  of  the  important  objects 
designed  to  be  accomplished  by  the  various  enactments  of  Con- 
gress relating  to  interstate  commerce.  The  Commission  was 
established  to  protect  the  public  against  the  improper  practices 
of  transportation  companies  engaged  in  commerce  among  the 
several  states.  It  has  been  left,  it  is  true,  with  power  to  make 
reports  and  to  issue  protests.  But  it  has  been  shorn,  by  judicial 
interpretation,  of  authority  to  do  anything  of  an  effective  char- 
acter. It  is  denied  many  of  the  powers  which,  in  my  judgment, 
were  intended  to  be  conferred  upon  it.  Besides,  the  acts  of  Con- 
gress are  now  so  construed  as  to  place  communities  on  the  lines 
of  interstate  commerce  at  the  mercy  of  competing  railroad  com- 
panies engaged  in  such  commerce.  The  judgment  in  this  case, 
if  I  do  not  misapprehend  its  scope  and  effect,  proceeds  upon  the 
ground  that  railroad  companies,  when  competitors  for  interstate 
business  at  certain  points,  may,  in  order  to  secure  traffic  for  and 
at  those  points,  establish  rates  that  will  enable  them  to  accom- 
plish that  result,  although  such  rates  may  discriminate  against 
intermediate  points.  Under  such  an  interpretation  of  the  stat- 
utes in  question,  they  may  well  be  regarded  as  recognizing  the 
authority  of  competing  railroad  companies  engaged  in  interstate 
commerce  —  when  their  interests  will  be  subserved  thereby  — 
to  build  up  favored  centers  of  population  at  the  expense  of  the 
business  of  the  country  at  large.  I  cannot  believe  that  Congress 
intended  any  such  result,  nor  do  I  tliink  that  its  enactments, 
properly  interpreted,  would  lead  to  such  a  result. 


XV 


THE   SOUTHERN  BASING  POINT  SYSTEM 
The  Dawson,  Ga.,  CaseI 

Prouty,  Commissioner : 

The  complainant  in  this  case  is  a  mercantile  organization  rep- 
resenting the  commercial  interests  of  the  city  of  Dawson,  Ga. 
No  question  is  made  about  its  competency  to  prosecute  this 
proceeding.  The  complaint  is  that  freight  rates  now  in  force 
from  New  York  and  northeastern  cities,  from  Cincinnati,  Ohio, 
Nashville,  Tenn.,  Chattanooga,  Tenn.,  and  New  Orleans,  La.,  to 
Eufaula,  Ala.,  and  Georgetown,  Americus  and  Albany,  Ga.,  as 
compared  with  those  to  Dawson,  Ga.,  are  in  violation  of  the 
third  section  of  the  Act  to  Regulate  Commerce,  in  that  they 
work  an  undue  preference  against  Dawson.  .   .   . 

The  class  rates  from  the  points  aboved  named  are  as  fol- 
lows :     [Abridged.  —  Ed.] 

Rates  in  Cents  per  100  Pounds,  except  Class  F,  which  is 
PER  Barrel 


Classes 

1 

3 

3 

4 

5 

6 

A 

B 

0 

D 

E 

H 

F 

From  New  York,  N.  Y. ,  to 

Dawson,  Ga., 

via  sea  and  rail  .... 

LSI 

111 

98 

8.3 

69 

56 

46 

55 

42 

40 

67 

78 

81 

"    all  rail 

143 

121  107 

91 

75 

61 

51 

— 

— 

— 

— 

— 

— 

1  Decided  March  27,  1899.  Interstate  Commerce  Reports,  Vol.  VIII,  pp.  142- 
157.  Other  similar  cases  have  been  recently  decided  for  Cordele,  Ga.  (Ibid., 
Vol.  VI,  34.3);  Griffin,  Ga.  {Ibid.,  Vol.  VII,  225);  Hampton,  Fla.  {Ibid.,  Vol. 
VIII,  50.3);  Wilmington,  S.C.  {Ibid.,  Vol.  IX,  118);  and  Tifton,  Ga.  {Ibid., 
Vol.  IX,  160). 

387 


OOCt 


KAILWAY   riiUl'.LEMS 


Bates  in  Cents,  etc.  {continued) 


From  New  York,  N.Y.,to 
Albany,  Ga., 

via  sea  and  rail  .... 

"    all  rail 

Americus,  Ga., 

via  sea  and  rail  .... 

"    all  rail 

Eufaula,  Ala., 

via  sea  and  rail  .... 

"    all  rail 

Georgetown,  Ga., 
via  sea  and  rail  .... 
"    all  rail 

From  Cincinnati,  Ohio,  to 

Dawson,  Ga 

Albanj-,  Ga | 

Americus,  Ga i 

Eufaula,  Ala 

Georgetown,  Ga 

(Based  on  Eufaula.) 

From  Nashville,  Tenn.,  to 

Dawson,  Ga 

Albany,  Ga ( 

Americus,  Ga ( 

Eufaula,  Ala 

Georgetown,  Ga 

(Based  on  Eufaula.) 

From  New  Orleans,  La. ,  to 

Dawson,  Ga 

Albany,  Ga 

Americus,  Ga 

Eufaula,  Ala 

Georgetown,  Ga.  . 

(Based  on  Eufaula.) 


109 
121 


114 
126 


114 
126 


139 
12-7 

117 

122 


104 
92 

72 


135 
123 


96 
106 


98  86 
108  95 


108 

98 
108 

121 
109 

102 
106 


103 
118 


117 
105 


102 


95 


86 


10 
96 

91 
94 


103 
92 

77 
90 


60  49 
66  54 


40  39 
45  44 


39  58 
44  64 


37 
32 

32 

24i 


30 
25 

23 

27i 


28 
26 


33 

28 

28 
29i 


26 
21 

19 

22i 


30 
24 

22 

25i 


60 


78 


78 


78 


76  88 


6H 

48 

44 
53 


The  commodity  rate  on  sugar  from  New  Orleans  is,  per  hun- 
dred pounds,  to  Eufaula,  Americus  and  Albany  18  cents,  to 
Dawson  31  cents.  ****** 


389 


J 'JO  KAILWAV  PROBLEMS 

An  examination  of  this  map  sliows  that  the  lines  of  the  de- 
fendant Central  of  (xeorgia  Railway  Company  reach  Americus, 
Albany,  Eufanla  and  Dawson,  its  outlying  termini  being,  so  to 
speak.  Savannah  upon  the  coast  and  Atlanta,  Birmingham  and 
Montgomery  in  the  interior.  The  line  of  the  defendant  Georgia 
»Jc  Alabama  Railway  Company  reaches  Americus,  Albany  and 
Dawson,  its  termini  being  Savannah  upon  the  coast  and  Mont- 
gomery in  the  interior.  It  also  lias  a  line  extending  from  Co- 
lumbus to  Albany  through  Dawson,  crossing  the  main  line  at 
Richland.  The  Plant  System  connects  Albany  with  Brunswick 
upon  the  Atlantic  seaboard. 

Trafhc  from  New  York  and  other  Atlantic  cities  may  reach 
these  different  points,  either  all  rail  or  by  rail  and  ocean.  The 
rate  in  the  two  cases  is  somewhat  different,  but  one  is  supposed 
to  be  fairly  the  equivalent  of  the  other.  Trafhc  coming  by  ocean 
and  rail  would  reach  Savannah  by  water,  from  whence  it  might 
pass  by  either  of  the  defendant  lines  to  any  one  of  the  points  in 
question,  except  Eufaula,  which  is  only  reached  by  the  Central 
of  Geoi'gia  Railway.  Trafhc  coming  all  rail  from  the  North 
would  also  ordinarily  pass  through  Savannah,  although  it  might 
reach  these  points  through  lines  farther  inland.  The  rate  is  the 
same  by  all  routes.  The  distance  from  Savannah  to  these  sev- 
eral points  by  the  Central  of  Georgia  Railway  is  — 

To  Americus 262  miles 

To  Dawson 289     " 

To  Eufaula 335      " 

To  Albany     .     ' 298      " 

Traffic  passing  over  this  line  from  Savannah  would  naturally, 
although  not  necessarily,  pass  through  Americus  and  Dawson 
in  reaching  Eufaula,  and  through  Americus  in  reaching  Albany. 

The  distance  from  Savannah  by  the  Georgia  &  Alabama 
Railway  is  as  follows  : 

To  Americus 109  miles 

To  Dawson 253      " 

To  Albany 276      " 

Traffic  from  Savannah  to  Albany  by  this  line  would  pass 
through  Dawson.    The  distance  from  Brunswick  to  Albany  via 


THE  DAWSON,  GA.,   CASE  391 

the  Plant  System  is  171  miles,  and  from  Albany  to  Dawson  by 
the  Georgia  &  Alabama  line  23  miles. 

The  short  line  all  rail  distance  from  New  York  is  — 

To  Americus 1036  miles 

To  Dawson 1063      " 

To  Eufaula 1109     " 

To  Albany 1072      " 

For  the  purposes  of  this  inquiry  Cincinnati,  Nashville  and 
Chattanooga  may  be  treated  as  one  group.  Traffic  from  these 
points  reaches  the  points  in  question  through  either  Atlanta, 
Birmingham  or  Montgomery.  The  rate  by  all  those  gateways 
is  the  same  and  the  difference  in  distance  is  not  considerable. 
TrafBc  for  all  these  points  via  the  Central  of  Georgia  Railway 
might  come  to  that  line  at  Atlanta,  Birmingham  or  Montgomery. 
The  Georgia  &  Alabama  would  ordinarily  I'eceive  traffic  for 
Americus,  Dawson  or  Albany  at  Montgomery.  The  distance  by 
that  line  from  Montgomery  is  — 

To  Americus 141  miles 

To  Dawson 126      " 

To  Albany 162      " 

Traffic  from  these  points  via  Montgomery  over  this  line  would 
pass  through  Dawson  in  reaching  Albany.       *  *  * 

New  Orleans  freight  reaches  the  points  in  question  over  the 
defendant  lines  ordinarily  through  Montgomery,  altliough  it 
might  come  through  points  north  of  JNlontgomery,  but  in  that 
event  the  distance  would  be  considerably  increased.  The  short 
line  distance  from  New  Orleans  is  — 

To  Eufaula 401  miles 

To  Dawson 447      " 

To  Americus 402      " 

To  Albany 483      " 

The  rates  from  all  the  points  in  question  to  Americus,  Albany 
and  Eufaula  ai-e  arbitrarily  made ;  that  is,  these  points  are  re- 
garded as  base  points.  The  rate  to  Dawson  is  said  to  be  the 
lowest  combination,  which  is  undei'stood  to  mean  the  lowest 
through  late  which  can  be  made  by  adding  the  local  rate  from 


;}<)2  KAILWAY    i'KOr.LE.MS 

some  l)ase  point  to  Dawson.  It  was  fiirtlier  said  in  testimony 
that  the  lowest  combination  at  the  present  time  in  most  cases 
was  that  upon  Kufaiila. 

Dawsou  is  a  town  of  from  2500  to  3000  inhabitants.  It  has 
one  wholesale  and  some  fifty-four  retail  establishments.  Several 
important  industries  are  located  at  that  point. 

Americus,  Albany  and  Eufaula  are  all  towns  of  from  5500 
to  8000  inhabitants.  They  have  from  four  to  eight  wholesale 
houses  each,  with  industries  of  various  kinds,  two  or  three  times 
as  extensive  as  Dawson.  The  only  two  lines  of  railway  at 
Americus  are  those  of  the  defendants,  and  the  same  is  true  of 
Dawson.  Albany  has,  in  addition  to  the  lines  of  the  defendants, 
the  Plant  System  from  Brunswick  upon  the  seacoast  in.  The 
only  line  at  Eufaula  and  Georgetown  is  the  defendant  Central 
of  Georgia  Railway.        ****** 

We  find  nothinor  in  the  commercial  conditions  existing  at 
Eufaula,  Americus  and  Albany  which  requires  the  defendants  to 
give  those  towns  better  freight  rates  than  Dawson  or  justifies 
them  in  so  doing.  Albany  has  in  the  Plant  System  an  additional 
line  of  railway  which  is  an  aggressive  competitor  for  business 
from  New  York  and  other  Atlantic  ports,  and  which  might  per- 
haps reasonal)ly  justify  a  somewhat  better  rate  from  such  points. 

Eufaula  is  situated  upon  the  Chattahoochee  river.  The  dis- 
tance from  Columbus  to  Eufaula  is  about  105  miles,  from  Eufaula 
to  Alaga  about  125  miles,  and  from  Alaga  to  River  Junction  50 
miles.  Some  five  or  six  different  railways  connect  at  Columbus. 
The  Plant  System,  running  from  Brunswick  through  Alaga  to 
Montgomery,  crosses  the  river  at  Alaga,  while  the  Louisville  & 
Nashville  touches  it  at  River  Junction,  upon  the  west  bank,  and 
the  Florida  Central  &  Peninsular  at  Chattahoochee,  upon  the 
east  bank.  Counsel  for  the  defendants  stated  upon  the  argument 
that  he  did  not  claim  that  traffic  reached  the  points  in  question 
from  points  like  New  York  or  New  Orleans  by  way  of  the  ocean 
and  the  Chattahoochee  river,  but  that  he  did  claim  that  this 
river  was  navigable,  and  that  there  were  in  fact  lines  of  steam- 
boats upon  it  which  brought  into  easy  connection  different  towns 
upon  the  river  itself. 


THE   DAWSOX,  GA.,  CASE  393 

It  did  not  appear  what  the  rate  of  freight  was  between  Colum- 
bus and  Eufaula,  nor  whether  freight  from  the  points  in  question 
was  ever  actually  transported  to  Eufaula  by  way  of  Columbus 
and  the  river.  Neither  did  it  appear  what  the  rate  or  the  move- 
ment of  freight  was  between  Alaga,  River  Junction  and  Eufaula. 
The  rates  from  New  York,  Cincinnati,  and  the  other  points  in 
question  are  the  same  to  Columbus  and  Eufaula,  while  to  Alaga 
they  are  materially  higher,  being  ordinarily  somewhat  higher 
than  to  Dawson.  At  River  Junction  and  Chattahoochee,  where 
rail  competition  again  becomes  possible,  they  are  about  the  same 
as  at  Eufaula.  No  reason  was  given  to  account  for  the  fact  that 
river  competition  between  Columbus  and  Eufaula  could  reduce 
the  Eufaula  rate  to  a  level  with  the  Columbus  rate,  while  the 
same  competition  between  Columbus,  Eufaula,  Alaga,  and  River 
Junction  left  the  rates  at  Alaga  materially  above  those  at  Eufaula, 
reducing  them  again  at  River  Junction  to  the  same  level. 

We  find  that  there  is  no  movement  of  freight,  and  no  prob- 
ability that  any  freight  will  be  moved,  from  New  York,  Cincin- 
nati, Nashville  and  New  Orleans  by  water  to  Eufaula  or  any 
other  point  upon  the  Chattahoochee  river,  and  that  the  lower 
rates  to  Eufaula  are  not  justified  by  any  such  possible  competi- 
tion. There  is  communication  for  about  ten  months  each  year 
by  steamboat  between  different  points  upon  that  river  which 
affords  actual  means  for  the  transportation  of  freight  between 
such  points. 

The  testimony  shows  this  service  to  be  about  triweekly  dur- 
ing the  season  of  navigation.  We  find  that  this  co-mpetition  ex- 
isting between  Columbus  and  Eufaula  does  not  necessitate  the 
maintenance  of  the  same  rate  at  Eufaula  as  at  Columbus.  Just 
what  relation  between  the  Columbus  and  Eufaula  rates  that  com- 
petition might  establish,  we  have  no  means  of  determining.  In 
our  opinion  it  does  not  enter  into  the  fixing  of  the  present 
Eufaula  rates. 

Eufaula  is  situated  upon  the  west  bank  of  the  Chattahoochee 
river.  Georgetown  is  a  small  village  just  opposite  Eufaula  upon 
the  east  bank,  and  the  rate  to  Georgetown  is  of  necessity  sub- 
stantially the  same  as  the  Eufaula  rate.  *  *  * 


:\\\[  i:  A  II.  WAV    PROBLEMS 

Fiinnerly  rates  in  the  State  of  Georgia  from  Atlanta  to  Albany 
wiTO  lower  than  rates  from  Atlanta  to  Dawson.  Upon  complaint 
of  the  Dawson  Board  of  Trade,  the  Railroad  Commission  of 
(reorgia,  on  September  1,  1897,  ordered  an  adjustment  of  these 
rates  so  that  all  rates  from  Atlanta  and  all  rates  which  based 
upon  Atlanta  were  made  the  same  to  Dawson  and  Albany.  In 
accordance  with  this  order  the  intrastate  rates  are  now  the  same 
from  Atlanta  to  these  two  points,  but  the  interstate  rates,  which 
are  made  through  Atlanta  or  which  base  upon  Atlanta,  as  all 
these  rates  both  from  the  East  and  from  the  West  in  effect  do, 
still  favor  Albany  as  hereinbefore  set  forth. 

Conclusions 

It  is  plain  that  the  rates  under  consideration  create  a  preference 
against  Dawson  in  favor  of  Albany,  Americus  and  Eufaula. 
Americus  is  to  the  northeast,  Albany  to  the  southeast,  and 
Eufaula  to  the  west,  of  Dawson,  thus  surrounding  it  upon  all 
sides.  And  yet,  no  matter  from  what  point  the  traffic  comes, 
whether  from  the  North,  the  East,  the  South  or  the  West,  the 
rate  to  all  these  points  is  lower  than  to  Dawson. 

It  is  equally  clear  that  this  preference  works  to  the  disadvan- 
tage of  Dawson  as  compared  with  Eufaula,  Americus  and  Albany. 
This  follows  both  from  necessary  inference  and  from  actual  testi- 
mony. The  Dawson  merchant,  whether  wholesale  or  retail,  pays 
just  so  much  more  for  his  goods  than  his  brother  merchant  in 
these  surrounding  towns,  and  this  amount  is  in  many  cases  a  very 
considerable  one.  If  he  sells  his  goods  to  the  consumer  at  the 
same  price  as  does  the  merchant  in  Americus,  Albany  or  Eufaula, 
he  loses  exactly  so  much,  and  is  therefore  prejudiced  to  exactly 
that  extent.  If,  upon  the  other  hand,  he  recoups  himself  for 
this  difference  in  the  freight  rate  by  an  increased  price  to  his 
customer  at  or  in  the  vicinity  of  Dawson,  then  that  customer  is 
injured  to  exactly  the  same  extent. 

It  is  found  as  a  fact  from  the  testimony  in  the  case  that  it  is 
impossible  to  do  a  wholesale  business  from  Dawson  in  com- 
petition with  any  one  of  these  three  towns  in  territory  which 


THE  DAWSON,  GA.,  CASE  395 

legitimately  belongs  to  Dawson,  and  it  is  also  found  that  in  the 
development  of  that  center  these  increased  freight  rates  are  a 
serious  drawback. 

The  question  then  remains,  Is  this  preference  an  undue  one  ? 
Even  if  it  does  work  to  the  disadvantage  of  Dawson,  is  it  not 
justifiable  ? 

The  defendants  insisted  in  their  answers  that  so  far  as  Eufaula 
was  concerned  these  rates  were  justified  by  water  competition 
upon  the  Chattahoochee  river.  The  answers  alleged,  and  some 
attempt  was  made  to  show  by  the  testimony  of  witnesses,  that 
commodities  consumed  at  Eufaula  were  actually  brought  from 
New  York,  Cincinnati  and  New  Orleans  by  ocean  or  river  and 
ocean  to  the  mouth  of  the  Chattahoochee,  and  thence  carried 
up  that  river  to  Eufaula  and  other  points  upon  it.  This  claim 
was  not,  however,  supported  by  the  testimony,  and  was  formally 
abandoned  by  counsel  for  defense  upon  tlie  argument,  who  stated 
that  he  did  not  claim  upon  the  evidence  that  freight  was  brought 
by  ocean  to  the  mouth  of  the  Chattahoochee,  and  from  thence 
carried  up  the  river  to  these  different  points  like  Eufaula,  but  he 
did  claim  that  the  Chattahoocliee  river  connected  different  lines 
of  railway  touching  it  at  diffei'ent  points,  and  thereby  brought 
these  lines  of  railway  into  competition  with  each  other.  The 
Chattahoochee  river  is  navigable  during  a  portion  of  the  year, 
and  is  at  the  present  time  navigated  by  several  small  steamboats, 
which  afford  communication  between  the  various  points  upon 
that  river  from  Columbus  to  Apalachicola.  That  river  is  crossed 
by  several  railroads  at  Columbus,  by  the  Central  of  Georgia  Rail- 
way at  Eufaula,  by  the  Plant  System  at  Alaga,  and  is  touclied 
by  the  Louisville  &  Nashville  at  River  Junction,  and  the  Florida 
Central  &  Peninsular  at  Chattahoochee. 

The  only  line  of  railroad  reaching  Eufaula  is  that  of  the  de- 
fendant Central  of  Georgia  Railway  Company.  There  are,  how- 
ever, several  lines  at  Columbus  which  create  active  competition 
at  that  point,  and  the  contention  of  the  defendants,  as  stated  by 
counsel  in  his  argument  and  in  his  i)rinted  brief,  is,  that  inasmuch 
as  these  two  points  are  connected  by  the  river,  higher  rates  can- 
not be  maintained  at  Eufaula  than  are  maintained  at  Columbus. 


306  IIAILWAY   PROBLEMS 

This  contention  has  been  examined  and  rejected  in  the  findings 
of  fart.  Eufaula  is  105  miles  from  Columbus.  Its  water  con- 
nection with  Columbus  is  by  small  steamers  which  pass  it  on  their 
way  to  Apalaehicola  three  times  a  week  for  ten  months  in  the 
year.  No  through  rate  via  Columbus  and  the  river  is  maintained, 
nor  docs  the  case  show  that  a  pound  of  freight  ever  passed  from 
New  York,  Chattanooga  or  New  Orleans  through  Columbus  and 
down  the  river  to  Eufaula.  There  is  nothing  in  this  situation 
which  leads  to  the  conviction  that  the  rates  at  Eufaula  are 
appreciably  affected  by  this  river  competition,  —  especially  when 
this  same  competition,  operating  in  exactly  the  same  way,  pro- 
duces no  effect  at  Alaga  or  River  Junction. 

Very  probably  the  Central  of  Georgia  Company  believes  it 
good  policy  to  make  the  low  rate  to  Eufaula,  thereby  developing 
that  town  and  stimulating  tlie  movement  of  freight  to  and  from  it ; 
but  might  not  the  same  policy  result  in  an  increased  movement 
to  Dawson,  and  at  all  events  has  not  Dawson  the  right,  under 
the  Act  to  Regulate  Commerce,  to  insist  upon  equal  treatment? 

The  remaining  alleged  justification  for  this  discrimination 
against  Dawson  is  railway  competition  or  the  competition  of 
markets  acting  through  the  railways.  As  already  said,  the  Cen- 
tral of  Georgia  Railway  is  the  only  line  reaching  Eufaula  and 
traffic  whether  from  the  East,  the  West  or  the  North  must  enter 
that  town  over  that  line.  Traffic  from  New  Orleans  to  Dawson 
would  pass  by  the  short  line  through  Eufaula,  and  this  might 
justify  a  lower  rate  to  Eufaula  than  to  Dawson.  The  short  line 
distance  from  Nashville  and  Cincinnati  is  through  Chattanooga, 
and  is  less  to  Dawson  than  to  Eufaula.  It  is  difficult  to  see, 
therefore,  how  the  higher  rate  to  Dawson  than  to  Eufaula  from 
these  points  can  be  justified,  and  we  hold  that  it  is  not. 

In  case  of  New  York  and  corresponding  eastern  cities  the  dis- 
crimination is  even  more  manifest.  Traffic  from  these  points, 
whether  by  rail  or  by  ocean,  ordinarily  reaches  Eufaula  through 
Savannah.  In  passing  from  Savannah  to  Eufaula  it  would  natu- 
rally pass  through  Dawson,  and,  by  whatever  route  it  went,  the 
distance  to  Eufaula  would  be  greater  than  to  Dawson.  The  com- 
petition at  Eufaula  we  have  already  referred  to.    At  Dawson 


THE  DAWSON,  GA.,  CASE  397 

the  Georgia  &  Alabama  Railway  is  a  direct  competitor.  We  can 
see  no  possible  reason  why  rates  to  Eufaula  from  New  York  and 
other  eastern  points  should  be  lower  than  to  Dawson,  and  we 
think  that  the  maintenance  of  such  rates  is  without  justification, 
and  is  in  violation  of  the  third  section. 

Comparing,  now,  Americus  and  Albany  with  Dawson,  we  find 
that  traffic  from  New  York  and  eastern  points  reaches  Americus 
and  Dawson  by  the  lines  of  both  defendants  through  Savannah. 
The  distance  from  Savannah  to  Americus  is  considerably  less  than 
to  Dawson.  While  the  distance  to  Albany  by  the  lines  of  the 
defendants  is  as  great  as  that  to  Dawson,  the  Plant  System  brings 
Albany  nearer  to  the  seacoast  at  Brunswick,  and  gives  it  an  addi- 
tional means  of  connection  with  New  York,  which  would  entitle 
it  to  as  low  a  rate  as  Americus.  We  do  not  think,  therefore, 
that  it  can  be  affirmed  that  under  no  circumstances  should 
Americus  and  Albany  receive  a  better  rate  from  New  York  and 
the  East  than  Dawson. 

Traffic  from  Nashville,  Cincinnati  and  Chattanooga  might 
reach  these  three  points  over  the  lines  of  the  defendants  in  vari- 
ous ways.  The  short  line  in  all  cases  is  through  Chattanooga  and 
Atlanta,  and  is  somewhat  less  to  Americus  and  somewhat  greater 
to  Albany  than  to  Dawson.  While  as  a  transportation  proposi- 
tion this  difference  in  distance  is  insignificant,  we  are  not  prepared 
to  affirm  that  under  no  rate  adjustment  might  the  rates  to  Ameri- 
cus be  less  than  those  to  Dawson,  but  we  do  hold  that  under  no 
circumstances  should  the  rate  to  Albany  be  lower  than  the  rate 
to  Dawson.  In  this  we  determine  with  reference  to  interstate 
rates  what  the  Commission  of  Georgia  has  already  established  in 
respect  to  rates  within  the  State. 

Traffic  from  New  Orleans  for  either  of  these  three  points  passes 
by  the  short  line  through  Birmingham,  the  distance  to  Americus 
and  Albany  being  substantially  the  same,  and  that  to  Dawson 
somewhat  less.  We  liold  that  there  is  no  justification  for  a  lower 
rate  from  New  Orleans  to  either  Americus  or  Albany  than  to 
Dawson. 

It  is  urged  that  these  rates  have  been  made  under  stress  of  com- 
petition between  eastern  and  western  markets.    It  is  said  both 


f>OS  RAILWAY  PROBLEMS 

the  East  and  the  West  demand  a  rate  which  will  entitle  either 
section  to  sell  in  this  territory. 

But,  first,  is  there  any  reason  wliy  the  market  of  production 
should  demand  an  equality  which  is  not  also  accorded  to  the  mar- 
ket of  consumption?  If  New  York  and  Chicago  demand  the 
same  right  to  sell  in  both  Eufaula  and  Americus,  may  not  Daw- 
son demand  the  same  right  to  purchase  in  either  market  that 
Eufaula  or  Americus  has  ? 

Then,  again,  what  eastern  and  western  markets  ask  for  is 
equal  rights.  They  do  not  demand  a  higher  rate  to  Dawson  than 
to  Americus.  These  defendants  absolutely  control  the  situation 
both  at  Dawson  and  at  Americus.  Now,  if  it  be  true  that  the 
rate  must  be  the  same  to  Americus  from  both  the  East  and  from 
the  West,  wh}^  nevertheless,  cannot  that  rate  be  somewhat  raised 
from  all  directions  and  the  Dawson  rate  correspondingly  lowered  ? 
The  discrimination  of  which  Dawson  complains  would  thereby 
be  removed  and  the  adjustment  between  eastern  and  western 
markets  equally  preserved. 

The  situation  complained  of  in  this  case  grows  out  of  the  sys- 
tem of  basing  points,  which  prevails  in  Southern  territory.  For 
the  purpose  of  making  rates  into  this  territory  certain  points  are 
selected  to  which  an  arbitrary  rate  is  made,  the  rate  to  surround- 
ing points  being  determined  by  adding  to  these  arbitrary  base 
rates  the  local  rates.  Americus,  Albany  and  Eufaula  are  basing 
points,  and  by  virtue  of  that  circumstance  enjoy  the  low  rates  in 
question.  Dawson  is  not  a  basing  point.  Now,  granting  that  the 
carrier  may  make  lower  rates  to  competitive  points  than  are  made 
to  intermediate  noncompetitive  points,  we  think  it  clear  that  the 
carrier  is  not  at  liberty  in  the  selection  of  these  basing  points  to 
determine  that  this  town  shall  have  the  benefit  of  the  low  rate 
and  that  town  shall  not,  when  the  means  of  competition  and  the 
conditions  surrounding  that  competition  do  not  materially  differ. 
Take  as  an  illustration  Americus  and  Dawson.  The  only  two 
railroads  serving  these  towns  are  the  lines  of  the  defendants.  No 
water  competition  is  involved.  The  distances  from  the  markets 
in  question  to  these  two  cities  are  substantially  the  same.  Now, 
v/hat  reason  is  there  for  giving  Americus  a  rate  of  18  cents  per 


THE  DAWSON,  GA.,  CASE  399 

hundred  pounds  on  sugar  from  New  Orleans,  while  Dawson  pays 
a  rate  of  31  cents  upon  the  same  commodity? 

It  should  be  carefully  noticed,  that  the  rate  to  Americus  is  an 
arbitrary  rate.  If  that  rate  were  fixed  by  adding  to  the  com- 
petitive ocean  rate  between  New  York  and  Savannah  the  rate 
of  the  Georgia  Railroad  Commission,  it  might  be  said  that  the 
Americus  rate  was  fixed  by  competition  beyond  the  control  of 
either  of  the  defendants.  Such  is  not,  however,  the  case.  The 
rate  to  Americus  is  less  than  the  rate  to  points  like  Huntington, 
Leslie  and  De  Soto  upon  the  line  of  the  Georgia  &  Alabama 
east  of  Americus.  Why,  then,  is  it  that  the  rate  to  Americus 
is  made  lower  than  the  surrounding  rates  and  lower  than  the 
Dawson  rate  ? 

Counsel  for  the  defendants  stated  upon  the  argument  that  it 
was  owing  to  competition  between  the  Central  of  Georgia  and 
the  Georgia  &  Alabama,  and  that  the  same  competition  did  not 
operate  at  Dawson,  although  the  same  means  of  competition 
existed.  He  said  that  the  rate  to  Americus  was  made  by  one 
line,  and  that  the  other  line  must  accept  that  rate  or  refuse  the 
business. 

The  city  of  Dawson,  in  its  distress,  asks  of  the  Traffic  Manager 
of  the  Central  of  Georgia  Railway,  "  Why  do  you  make  the  low 
rate  to  Americus  and  maintain  the  high  rate  to  Dawson  ?  "  and 
the  answer  is,  "  I  make  the  low  rate  to  Americus  because  my 
competitor,  the  Georgia  &  Alabama  Railway,  over  which  I  have 
no  control,  makes  that  rate,  and  I  must  either  meet  it  or  go  out 
of  the  business.  I  do  not  make  a  corresponding  rate  to  Dawson 
because  my  competitor,  tlie  (ieorgia  &  Alabama  Railway,  does 
not  make  such  a  rate."  Thereupon  the  city  of  Dawson  turns  to 
the  Traffic  Manager  of  the  (ieorgia  &  Alabama  liailway,  and 
inquires,  "  Why  is  it  that  you  make  the  low  rate  to  Americus 
while  maintaining  the  liigh  rate  to  Dawson  ?  "  and  again  the 
answer  is,  "I  niake  tlie  low  rate  to  Americus  l)ecause  my  com- 
petitor, the  Central  of  Georgia  Railway,  over  which  I  have  no 
control,  makes  that  rate,  and  T  must  meet  it  or  refuse  tlie  busi- 
ness. I  do  not  make  the  same  rate  to  Dawson  because  my  com- 
petitor, the  Central   of   Georgia  Railway,  does  not."    Tliis   is 


400  RAILWAY   rilOiJLEMS 

worse  than  Hindoo  ^Mythology,  according  to  which  the  earth 
was  supported  upon  the  back  of  a  tortoise,  which  in  turn  rested 
on  the  back  of  an  eh'phant.  In  that  case  the  turtle  at  least 
had  something  to  stand  upon. 

Now,  it  is  pretty  a})parent  unless  the  trafRc  managers  of  these 
lines  can  give  some  intelligent  reason  for  making  the  low  rate  at 
Americus  and  not  at  Dawson,  the  Act  to  Regulate  Commerce, 
which  forbids  an  undue  preference,  is  violated. 

Counsel  for  the  defendants,  being  pressed  with  this  observa- 
tion, said  that  in  the  present  instance  the  justification  for  the 
lower  rate  at  Americus  was  found  in  the  fact  that  Americus 
was  a  larger  trade  center  than  Dawson,  and  therefore  entitled  to 
a  better  rate. 

By  the  Census  of  1890  the  population  was: 

Of  Macon 22,746 

Of  Columbus 17,303 

Of  Montgomery 21,883 

Of  Americus 6,398 

Of  Albany 4,008 

OfEufaula 4,394 

Of  Dawson 2,284 

Macon  had  six,  Columbus  three,  Montgomery  six,  Albany 
three,  Americus  two,  Eufaula  one,  and  Dawson  two  railroads. 

Americus  with  6000  inhabitants  and  two  railways  had  the 
same  rate  as  Columbus  with  17,000  inhabitants  and  three  rail- 
ways ;  Albany  with  4000  inhabitants  and  three  railways  ob- 
tained the  same  rates  as  Macon  witli  22,000  inhabitants  and  six 
railways ;  Eufaula  with  4000  inhabitants  and  one  railway  ob- 
tained the  same  rates  as  Montgomery  with  21,000  inhabitants 
and  six  railways.  Still,  these  defendants  who  make  and  partici- 
pate in  the  aforesaid  rate  adjustments,  insist  that  Dawson  with 
2000  inhabitants  and  two  railways  is  not  entitled  to  the  same 
rate  as  Americus  with  6000  inhabitants  and  the  same  two  rail- 
ways. It  should  be  observed  that  this  discrimination  is  one 
which  fortifies  itself  from  year  to  year,  since  the  more  favorable 
freight  rate  increases  every  day  the  difference  in  population  be- 
tween Americus  and  Dawson.  It  was  said  upon  the  argument, 
and  not  denied,  that  when  the  Georgia  &  Alabama  Railway  was 


THE   DAWSON,  GA.,  CASE  401 

first  completed  between  Americus  and  Savannah,  Americus  and 
Dawson  did  not  differ  materially  in  size. 

It  has  been  found  as  a  matter  of  fact  that  there  are  no  com- 
mercial or  competitive  conditions  at  Americus  which  entitle  that 
city  to  a  better  rate  than  Dawson.  Under  some  different  adjust- 
ment of  freight  rates  Americus  might  be  entitled  in  some  in- 
stances to  a  better  rate  than  Dawson.  So  long  as  the  present 
system  of  rate  making  is  continued,  we  hold  that  Daw' son  should 
be  given  the  same  rate  as  Americus.  We  do  not  approve  that 
system,  but  if  the  defendants  put  and  continue  it  in  force  they 
cannot  be  heard  to  say  that  Dawson  should  not  receive  the  same 
treatment  as  Americus. 

In  accordance  with  the  foregoing  views  an  order  will  be  made 
directing  : 

First :  That  the  Central  of  Georgia  Railway  Company  cease 
and  desist  from  maintaining  higher  rates  from  New  York  and 
other  eastern  points  to  Dawson  than  are  maintained  to  Eufaula  ; 

Second  :  That  both  the  defendants  cease  and  desist  from 
maintaining  higher  rates  from  Nashville,  Cincinnati  and  Chat- 
tanooga to  Dawson  than  to  Albany  ; 

Third:  That  both  the  defendants  cease  and  desist  from 
maintaining  higher  rates  from  New  Orleans  to  Dawson  than  to 
Americus  or  Albany  ; 

Fourth  :  That  so  long  as  the  present  system  of  rate  making 
is  adhered  to,  the  defendants  cease  and  desist  from  maintaining 
higher  rates  from  any  of  the  points  in  question  to  Dawson  than 
are  maintained  to  Americus. 


XVI 


RATES  TO  COMPETING  LOCALITIES 
The  Danville,  Va.,  Case\ 
Prouty,  Commissioner : 

The  rates  complainud  of  arc  divided  in  the  complaint  into 
four  groups.  First,  those  to  Danville  from  northern  and  eastern 
cities ;  second,  rates  on  sugar,  molasses,  rice,  and  coffee  from 
New  Orleans  to  Danville  ;  third,  rates  from  certain  western 
points  to  Danville ;  fourth,  the  rate  on  tobacco  from  Danville 
to  western  points. 

1.  Freight  from  northern  and  eastern  cities  may  come  to 
Danville  either  all  rail  or  by  rail  and  water.  This  case  does 
not  show  to  what  extent  all  rail  competition  exists,  but  it  fairly 
appears  from  the  testimony  that  the  great  bulk  of  such  traffic 
is  brought  by  water  to  Norfolk,  or  to  some  point  in  that  vicin- 
ity which  may  be  conveniently  designated  as  Norfolk,  and  is 
from  thence  carried  by  rail  to  its  destination.  Taking  New 
York  as  a  type  of  these  cities,  the  class  rates  to  Lynchburg 
and  Danville  are  as  follows  : 


Rates  ik  Cents  per  100  Poinds,  except  Class  F,  which  is  per  Barrel 


From  New 

York  to 

Classes 

1 

% 

3 

4 

6 

6 

A 

B 

C 

D 

E 

H 

F 

Lynchburg, 
and  rail 

Danville,  Va 
rail    . 

Va. ,    water 
,  water  and 

54 

47 

38 

25 

22 

29 

18 
24 

18 
24 

22 

27 

18 
24 

18 
22 

22 
29 

25 
33 

36 
4fi 

1  Decided  February  17,  1900.  Interstate  Commerce  Reports,  Vol.  VIII, 
pp.  409-442.  Resumed  in  Ilnd.,  Vol.  VIII,  pp.  571-583.  Finally  disposed 
of  in  the  Chattanooga  decision.  See  Ripley's  Railroads:  Rates  and  Regu- 
lation, p.  48.J. 

402 


THE  DANVILLE,  VA.,  CASE 


403 


The  map  on  the  following  page  gives  a  general  idea  of  the 
location  of  the  points  in  question  and  the  lines  of  transportation 
involved. 

This  traffic  comes  by  boat  to  Norfolk.  From  Norfolk  the 
Southern  Railway  leads  directly  to  Danville,  distance  205  miles. 
The  short  line  from  Norfolk  to  Lynchburg  is  by  the  Norfolk  & 
Western  204  miles.  The  distance  by  the  Chesapeake  tfe  Ohio 
is  231  miles.  Lynchburg  is  upon  the  Southern  road,  Q6  miles 
north  of  Danville,  and  a  third  route  from  Norfolk  to  Lynchburg 
is  by  the  Southern  to  Danville  205  miles  and  from  Danville 
to  Lynchburg  6Q  miles,  making  271  miles  in  all.  Lynchburg 
is  upon  the  main  line  of  both  the  Chesapeake  &  Ohio  and  the 
Norfolk  &  Western. 

There  are  three  lines  of  railway  leading  north  and  east  from 
Danville,  which  were  formerly  independent,  but  are  now  all 
controlled  by  the  Southern.  These  aie  the  Atlantic  &  Danville 
to  Norfolk,  the  Richmond  &  Danville  to  Richmond,  and  the 
Lynchburg  &  Danville  to  Lynchburg. 


Rates  from  eastern  cities  to  Richmond  are  much  lower  than 
to  Lynchburg,  due  ])robably  to  the  fact  that  Richmond  has  by 
the  James  river  direct  water  communication  with  the  Atlantic 
seaboard.  All  other  rates  appear  to  be  uniformly  the  same  to 
Norfolk,  Richmond  and  Lynchburg,  certainly  to  Richmond  and 
Lynchburg.  For  the  purpose  of  avoiding  unnecessary  repetition, 
only  the  rate  to  Lynchburg  will  be  given. 

2.  The  rates  on  sugar,  molasses,  rice,  and  coffee  from  New 
Orleans  to  Lynchburg  and  Danville  are  as  follows  : 


Fkom  New  Orleans  to 

Sugar 

Molasses 

Coffee 

KiCE 

Lynchburg  

Danville 

32 
43 

2C, 
37 

40 

51 

32 
43 

The  Soutliern  alone  cari'ies  this  ti-affic  into  Danvilk',  but 
it  may  l)ring  it  either  from  the  Noith  via  Lynchburg  or  from 
the   South.     The  Chesapeake    &    Ohio,   Norfolk    &   Western, 


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404 


THE  DANVILLE,  VA.,  CASE 


405 


and  Southern  all  compete  for  this  same  traffic  to  Lynchburg, 
Richmond,  and  Norfolk.  Such  traffic  may  leave  New  Orleans  by 
various  routes.  It  may  reach  the  Southern  road  over  either  the 
Louisville  &  Nashville,  the  Queen  &  Crescent,  or  the  Illinois 
Central,  and  it  may  also  reach  the  Chesapeake  &  Ohio  and  Nor- 
folk &  Western  over  either  of  those  lines.  In  going  by  the 
Southern  to  either  Lynchburg  or  Richmond  it  passes  through 
Danville,  by  whatever  route  it  starts. 

3.  Rates  from  Cincinnati  and  Louisville  are  the  same  to 
Lynchburg  and  also  to  Danville.  Those  rates,  together  with 
the  rates  from  Chicago  and  East  St.  Louis,  are  given  below : 

Kates  in  Cents  per  100  Pounds,  except  Class  F,  avhich  is  pek  Bakrel 


From  Louisville,  Ky., 

and  Cincinnati,  0.,  to 

Lynchburg,  Va. 

Danville,  Va.     . 

From  Chicago,  III.,  to 
Lynchburg,  Va. 
Danville,  Va. 

From  East  St.  Louis 
III,  to 
Lynchburg,  Va. 
Danville,  Va.     . 


Classes 


53i 
56 


72i 
89 


m 

45 


27.1 
33 


37i 
50 


18i 
21 


19 


31 


28 


22 


39 


39 


22 


34 


34 


21 


31 


29 


30 


43 


43 


30 


46 


45 


68 


22i 
29 


22i 
34 


es   O   2 

dnS  Oh 


23 

22 


27 
39 


32 
39 


The  Southern  Railway  reaches  in  effect  with  its  own  iron 
Louisville  and  Cincinnati  from  Lynchburg  and  Danville. 
Traffic  from  either  of  these  cities  to  Lynchburg  by  that  route 
would  necessarily  pass  through  Danville.  The  Chesapeake  & 
Ohio  also  reaches  both  Louisville  and  Cincinnati.  The  Norfolk 
&  Western  by  its  connections  takes  traffic  fi-om  these  two  cities. 
The  distances  by  the  several  routes  are  as  follows : 


400  i;aii.\\a\    I'Kor.LEMS 

From  Cincinnati 
To  Lynchburg 

via  tiie  Chesapeake  &  Ohio  474  miles ; 
via  the  Norfolii  &  Western  510  miles ; 
via  the  Southern  742  miles. 

To  Danville 
via  the  Southern  676  miles. 

From  Louisville 
To  Lynchburg 
via  the  Chesapeake  &  Ohio  537  miles ; 
via  the  Norfolk  &  Western  551  miles  ; 
via  the  Southern  722  miles 

To  Danville  , 

via  the  Southern  656  miles. 

Traffic  from  Chicago,  St.  Louis  and  other  parts  of  the  West 
and  Southwest  passes  through  Cincinnati  and  Louisville,  reach- 
ing those  points  by  various  lines.  It  might  be  expected  that 
the  same  difference  in  rate  would  prevail  between  Lynchburg 
and  Danville  in  case  of  traffic  originating  beyond  and  passing 
through  Cincinnati  and  Louisville  as  in  case  of  traffic  originat- 
ing at  those  cities,  but  an  inspection  of  the  rates  above  given 
shows  that  the  discrimination  against  Danville  is  very  decidedly 
greater  with  freight  starting  at  St.  Louis  or  Chicago  than  it  is 
with  the  same  freight  when  it  originates  at  Louisville  or  Cincin- 
nati.   The  reason  for  this  will  be  stated  later. 

4.  The  rate  on  leaf  tobacco  from  Danville  to  Louisville  is  40 
cents  per  hundred  pounds,  while  the  rate  from  Lynchburg  and 
Richmond  to  the  same  point  is  24  cents  per  hundred  pounds. 
The  Southern  road  makes  this  rate  and  carries  this  traffic  from 
Richmond,  Lynchburg  and  Danville,  that  from  Richmond  or 
Lynchburg  passing  through  Danville  eti  route  for  Louisville. 
Tobacco  rates  from  Danville  to  other  western  destinations 
are  correspondingly  higher  than  those  from  Richmond  and 
Lynchbuig. 

All  the  rates  above  referred  to  are  made  and  participated  in 
by  the  Southern  Railway.  In  case  of  all  those  rates,  no  matter 
from  what  direction  the  traffic  comes,  it  is  carried  through  Dan- 
ville to  Lynchburg  or  Richmond.    The  complainants  insist  that 


THE  DANVILLE,  VA.,  CASE  407 

by  thus  making  the  lower  charge  to  the  more  distant  jjoint  the 
defendant  violates  the  4th  section  and  is  also  guilty  of  an  unjust 
discrimination  under  the  3d  section. 

The  defendant  justifies  the  difference  in  rates  between  Dan- 
ville upon  the  one  hand  and  Richmond  and  Lynchburg  on  the 
other  by  showing  the  existence  of  competitive  conditions  at 
the  two  last-named  points.  The  claim,  briefly  stated,  seems  to 
be  this  : 

Baltimore  is  an  important  commercial  center,  and  is  so  sit- 
uated and  has  such  railroad  connections  that  it  competes  both  in 
domestic  business  and  as  a  port  of  export  and  import  with  other 
commercial  centers  upon  the  Atlantic  seaboard,  like  New  York, 
Philadelphia,  etc.  The  lines  of  railway  connecting  these  cen- 
ters with  the  West  are  strong  trunk  lines,  and  are  so  situated 
that  competition  between  them  has  been  unusually  active.  The 
Erie  Canal  to  New  York  has  been  and  is  an  important  factor  in 
fixing  the  Baltimore  rate,  especially  the  export  rate,  which  has 
generally  been  the  same  as  the  domestic  rate.  From  all  these 
causes  it  had  resulted,  previous  to  the  construction  of  the  Ches- 
apeake &  Ohio  Railway,  that  the  Baltimore  rate  from  almost  all 
directions  was  an  extremely  low  one. 

When  the  Chesapeake  &  Ohio  Railway  was  completed  from 
Cincinnati  through  to  Richmond  and  Norfolk,  these  points  were 
put  into  communication  with  the  Wes't  in  the  same  manner  that 
Baltimore  was  by  its  lines  of  railway,  and  that  company  at  once 
adopted  the  policy  of  making  its  rates  from  the  West  to  Rich- 
mond and  Norfolk  the  same  as  tlie  Baltimore  rate.  This  was 
probably  done,  for  two  reasons  :  First,  to  enable  Richmond  and 
Norfolk  to  compete  with  Baltimore  for  the  wholesale  trade  in 
intermediate  territory ;  second,  that  the  Chesapeake  &  Ohio 
might  conduct  through  the  port  of  Norfolk  an  export  and 
import  business. 

After  the  [)assage  of  the  Act  to  Regulate  Commerce,  the 
Chesapeake  &  Ohio,  under  its  interpretation  of  the  4th  section 
of  that  Act,  applied  no  higher  rate  to  intermediate  points  than 
was  applied  to  Norfolk  upon  business  moving  east,  and,  in  most 
cases,  to  Cincinnati  upon  business  moving  west;  and  this  had 


408  KAIL^VAY  PROBLEMS 

the  effect  of  giving  intermediate  points  as  low  a  rate  as  Norfolk 
or  Cincinnati.  The  original  line  of  the  Chesapeake  &  Ohio  did 
not  pass  through  Lynchburg,  but  about  1886  it  acquired  a  line 
of  railway  leading  from  Clifton  Forge  through.  Lynchburg  to 
Richmond,  and  the  effect  of  this  was  to  give  Lynchburg  the 
Richmond  rate. 

Still  later,  when  the  Norfolk  &  Western  Railway  was  com- 
pleted through  Lynchburg  to  Norfolk,  that  company  was  obliged 
to  adopt  those  rates  of  the  Chesapeake  &  Ohio  to  Richmond, 
Lynchburg  and  Norfolk  which  were  then  in  effect.  It  also 
placed  the  same  construction  upon  the  4th  section  which  the 
Chesapeake  &  Ohio,  together  with  most  northern  roads,  had, 
and  charged  no  more  to  the  intermediate  than  to  the  distant 
point  in  either  direction.  This  gave  all  stations  upon  the  main 
line  of  the  Norfolk  &  Western  the  same  rate  as  Norfolk.  The 
Southern  came  into  this  field  of  competition  last  of  all.  When 
that  company  determined  to  compete  for  this  traffic  it  simply 
met  the  rates  of  the  Chesapeake  &  Ohio  and  the  Norfolk  & 
Western  which  were  already  in  effect,  and  this  is  all  it  has  ever 
done.  It  has  not  reduced  the  Richmond  or  Lynchburg  or  Nor- 
folk rate.  It  has  not  raised  the  Danville  rate.  It  has  in  no  way 
intensified  the  discrimination  against  Danville,  but  has  simply 
left  the  situation  where  it  found  it.  By  entering  this  competi- 
tive field  it  did  not  injure  Danville ;  to  withdraw  from  it  would 
not  benefit  Danville.  The  business  is  a  source  of  some  profit 
to  the  Southern  Company ;  therefore  that  company  should  be 
allowed  to  continue  in  it. 

The  above  is  the  claim  of  the  Southern  Railway  Company 
defendant,  as  we  understand  it.  The  facts  stated  in  that  claim 
are  for  the  most  part  correct.  The  Baltimore  rate,  owing  to 
various  competitive  influences,  was,  previous  to  the  construction 
of  the  Chesapeake  &  Ohio  Railway,  an  extremely  low  rate.  We 
find  from  the  testimony  in  this  case  that  the  Chesapeake  &  Ohio 
determined  to  place  Richmond  and  Norfolk  upon  an  equality 
with  Baltimore  in  the  matter  of  rates,  and  that  subsequently, 
upon  the  passage  of  the  Interstate  Commerce  Act,  it  so  inter- 
preted the  4th  section  of  that  Act  as  to  give  to  all  intermediate 


THE  DANVILLE,  YA.,  CASE  409 

points  as  low  a  rate  as  the  more  distant  point.  When  the  Nor- 
folk &  Western  entered  Richmond,  Lynchburg  and  Norfolk  it 
found  this  relation  in  rates  in  effect,  and  that  relation  has  ever 
since  been  maintained.  The  Southern  was  the  last  competitor 
to  enter  this  territory,  and  we  find  upon  the  testimony  of  Mr. 
Gulp,  its  Traffic  ^Manager,  that  the  policy  of  that  line  has  been 
to  meet  at  Richmond,  Lynchburg  and  Norfolk  the  rates  made 
by  other  lines. 

We  do  not  find,  as  claimed  by  the  Southern  Railway,  that  the 
Baltimore  rate  has  fixed  the  Richmond  and  Norfolk  rate.  Upon 
the  other  hand,  these  two  rates  have  mutually  interacted  the 
one  upon  the  other,  and  while  the  Baltimore  rate  has  been  sub- 
ject to  reductions  by  influences  from  the  north  as  well  as  from 
the  south,  we  think  that  the  Norfolk  rate  may  have  operated 
to  reduce  the  Baltimore  rate  quite  as  frequently  as  the  reverse. 
Neither  do  we  find,  as  claimed  by  this  same  defendant,  that  the 
Chesapeake  &  Ohio  has  been  responsible  all  along  for  the  Rich- 
mond, Lynchburg  and  Norfolk  rates,  and  that  the  Norfolk  & 
Western  upon  entering  the  field,  and  subsequently  the  South- 
ern, have  simply  met  those  rates.  These  three  lines  of  railway 
are  in  competition  for  this  business,  and  there  is  no  evidence 
which  satisfies  us  that  any  one  of  them  has  been  in  the  past,  or 
will  be  in  the  future,  entirely  responsible  for  fluctuations  in  the 
competitive  rates.         ****** 

The  Southern  Railway  Company  was  organized  in  July, 
1894,  for  the  purpose  of  effecting  the  consolidation  of  certain 
railway  properties.  As  a  result  of  that  consolidation  that  com- 
pany almost  or  quite  from  the  first  owned  a  through  line  from 
the  Ohio  river  to  Norfolk,  as  well  as  to  Richmond  and  Lynch- 
burg. Previous  to  this  time  the  roads  composing  the  Southern 
had  not  competed  for  western  business  to  these  three  points, 
but  the  Southern  decided  at  once  to  become  such  competitor, 
and  has  been  since. 

The  lines  of  railway  composing  tlie  Southern  had,  previous 
to  the  consolidation,  formed  a  through  route  for  the  transporta- 
tion of  merchandise  from  New  Orleans  to  Richmond,  Lynchburg 
and  Norfolk.     It  does  not  very  clearly  appear  to  what  extent 


410  EAILWAY  PROBLEMS 

such  lines  nortli  of  DanvilU'  had  engaged  in  traflfic  between 
northern  cities  and  Lj-nchburg. 

What  has  been  said  sufficiently  states  the  competitive  con- 
ditions existing  at  Kichmond  and  Lynchburg  as  compared  with 
Danville.  There  is,  however,  still  another  phase  of  this  situa- 
tion which  should  be  especially  referred  to. 

It  has  been  already  seen  that  the  Chesapeake  &  Ohio,  the 
Norfolk  &  Western,  and  Southern  all  compete  for  business 
from  Louisville  and  Cincinnati  to  the  three  cities  in  question. 
It  has  been  further  noticed  that  the  difference  in  rates  on  traffic 
originating  north  of  the  Ohio  river  is  much  greater  than  in 
case  of  traffic  originating  at  Cincinnati  &  Louisville,  although 
the  competition  between  these  rival  lines  is  through  Cincinnati 
&  Louisville.     The  reason  seems  to  be  this: 

In  the  making  of  rates  between  the  West  and  the  Atlantic 
seaboard  the  New  York-Chicago  rate  is  taken  as  a  base.  The 
rate  from  Chicago  to  Baltimore  is  a  certain  differential  below 
that  from  Chicago  to  New  York.  Rates  from  various  sections 
in  the  West  to  New  York  are  a  percentage  of  the  Chicago  rate. 
Thus,  Louisville  is  a  100  per  cent  point,  and  the  rate  from  there 
to  New  York  or  Baltimore  is  the  same  as  Chicago.  Cincinnati 
is  an  87  per  cent  point,  and  the  rate  from  Cincinnati  would  be 
87  per  cent  of  the  rate  from  Chicago  to  Baltimore.  Now,  Ilich- 
mond  and  Lynchburg  take  the  Baltimore  rate,  and  upon  the  rule 
above  stated  the  rate  from  Cincinnati  to  Richmond  and  Lynch- 
burg ought  to  be  less  than  the  rate  from  Louisville.  It  seems, 
however,  that  at  some  time  in  the  past  the  lines  leading  from 
Louisville  insisted  upon  making  the  same  rate  from  that  city  as 
from  Cincinnati.  It  further  appears  that  the  same  lines,  working 
I)robably  through  Southern  territory,  insisted  that  the  Danville 
rate  should  approach  quite  nearly  the  Lynchburg  rate  on  Louis- 
ville and  Cincinnati  business. 

The  rate  from  Chicago  to  Danville  is  made  by  adding  to  the 
Louisville  and  Cincinnati  rate  the  local  rate  from  Chicago  to 
those  cities ;  that  is,  traffic  which  has  come  from  Chicago  to 
Louisville  pays  exactly  the  same  rate  from  Louisville  to  Danville 


THE  DANVILLE,  VA.,  CASE  411 

as  does  traffic  which  originates  at  Louisville.  The  local  first-class 
rate  from  Chicago  to  Louisville  is  40  cents,  which,  added  to  the 
first-class  rate  from  Louisville  to  Danville,  makes  a  through  rate 
of  $1.08 ;  but  the  rate  from  Chicago  to  Baltimore,  first  class,  is 
72  cents,  and  since  Lynchburg  takes  the  Baltimore  rate  the  rate 
from  Chicago  to  Lynchburg  is  also  72  cents.  This  rate  of  72 
cents  is  divided,  from  Chicago  to  the  north  bank  of  the  Ohio 
river  23  cents,  and  from  the  river  to  Lynchburg  49  cents. 

The  testimony  was  that  Danville  merchants  bought  largely 
in  the  markets  of  Chicago  and  St.  Louis,  and  but  little  in  those 
of  Cincinnati  and  Louisville,  so  that  the  Chicago  and  St.  Louis 
rates  are  the  ones  which  especially  concern  tliat  city. 

It  will  be  seen  from  an  examination  of  the  foregoing  facts 
that  through  rates  to  and  from  all  directions,  whether  north, 
east,  south,  or  west,  are  higher  to  Danville  than  to  Richmond 
and  Lynchburg.  The  complainants  insist  that  this  discrimina- 
tion in  favor  of  the  two  cities  last  named  is  most  detrimental 
to  the  material  interests  of  Danville.  *  *  * 

It  appears  from  the  testimony  that  it  has  been  possible  to  ship 
tobacco  from  Danville  to  Richmond,  store  it  for  a  time  at  Rich- 
mond, and  send  it  along  to  market  upon  the  same  rate  that  it 
could  have  been  shipped  from  Danville  itself  in  the  first  instance, 
although  the  first  carriage  from  Danville  to  Riclimond  was  by 
the  Southern,  and  the  final  shipment  from  Richmond  may  have 
passed  back  through  Danville  over  the  same  line. 

The  complainants  insist  that  not  only  does  this  discrimination 
in  freight  rates  cripple  the  business  industries  already  located 
at  Danville,  but  that  it  prevents  the  establishment  of  new 
industries  at  that  point.  .  .  . 

The  complainants  further  insist  that,  in  addition  to  the  spe- 
cific injuries  previously  pointed  out,  the  general  effect  is  most 
baleful.  This,  as  we  have  often  remarked  in  previous  cases, 
must  also  be  true.  The  cost  in  Danville  of  everything  into 
which  the  freight  rate  enters  is  more  than  in  the  favored  locali- 
ties, and  unless  there  are  some  compensating  ciicumstances  the 
effect  of  this  must  be  to  decrease  the  value  of  property  and  to 
depress  all  kinds  of  business  in  that  city. 


412  RAILWAY  PROBLEMS 

Twenty  years  ago  Danville  was  a  town  of  some  3000  inhab- 
itants. To-day  it  is  a  place  of  nearly  20,000.  Most  of  this 
growth  had  taken  place  previous  to  the  last  ten  years.  In  the 
whole  period  it  has  developed  more  than  Lynchburg,  but  it 
is  not  at  the  present  time  as  thriving  as  its  rival.  It  will  be 
remembered  that  Lynchburg  only  received  the  Richmond  rate 
when  the  Chesapeake  &  Ohio  obtained  possession  of  the  Rich- 
mond &  Allegheny  Railroad,  about  1886.      *  *  * 

The  Southern  Railway  was  organized  in  1894  for  the  purpose 
of  consolidating  certain  railroad  properties,  and  it  has  since  its 
organization,  from  time  to  time,  taken  on  additional  properties. 
The  lines  which  it  now  controls  into  Danville  were  originally 
built  and  operated  by  independent  companies.  ...  In  1886  or 
thereabouts  the  Richmond  &  Danville  Company  leased  the  Vir- 
ginia Midland,  which  it  continued  to  operate  from  then  on  until 
absorbed  by  the  Southern.  The  complainants  insist  that  pre- 
vious to  the  lease  of  the  Virginia  Midland  and  while  these  roads 
were  in  competition  for  business,  Danville  enjoj^ed  substantial 
equality  in  freight  rates  with  Lynchburg  and  Richmond. 

The  Traffic  Manager  of  the  Southern  Railway  testified  that  he 
had  been  familiar  with  the  rate  situation  in  this  vicinity  since 
1875,  and  that  during  that  time  rates  had  been  uniformly  higher 
to  Danville  than  to  either  Richmond  or  Lynchburg.  .  .  .  Gen- 
erally speaking  the  difference  was  greater  than  now  exists  in 
amount  and  perhaps  equally  great  in  percentage.  Since  1887 
the  published  rates  to  Danville  have  been  higher  by  about  the 
present  degree  than  to  Richmond  and  Lynchburg. 

While  this  is  true  of  the  established  rate,  the  testimony  of 
numerous  witnesses  introduced  by  the  complainants  leaves  as- 
little  doubt,  and  we  find,  that  previous  to  1886  the  actual  rate 
paid  by  Danville  was  not  materially  higher  than  that  of  its  com- 
petitors, Lynchburg  and  Richmond.  It  is  well  understood  that 
published  rates  previous  to  1887  were  not  observed.  Special 
rates,  rebates,  and  all  kinds  of  concessions  to  shippers  were  in 
those  days  the  rule,  not  the  exception ;  and  we  are  satisfied  that 
merchants  at  Danville  then  obtained  much  better  rates  in  com- 
parison  with  their   competitors   at  Richmond  and   Lynchburg 


THE  DAXYILLE,   YA.,  CASE  413 

than  they  do  to-day.  It  is  not  probable  that  these  rates  were  in 
all  cases  equal.  The  average  was  probably  higher,  but  the  effect 
of  any  difference  against  Danville  was  not  felt  as  it  now  is,  for 
the  reason  that  business  is  now  transacted  upon  smaller  margins 
than  it  then  was.  From  about  1886,  when  there  ceased  to  be 
effective  competition,  the  rates  were  better  maintained,  and  since 
then  the  business  interests  of  Danville  have  suffered  more  from 
the  effect  of  these  discriminations. 

The  defendant  Southern  Railway  insisted  that,  if  compelled 
to  reduce  its  rates  at  Danville,  it  must  make  corresponding 
reductions  throughout  its  intermediate  territory,  and  that  the 
effect  of  this  would  be  to  seriously  cripple  its  revenues.  An 
examination  of  rates  from  the  points  in  question  to  other  points 
upon  the  lines  of  the  Southern  Railway  reveals  the  fact  that 
those  rates  are  usually  higher  at  the  present  time  than  the  Dan- 
ville rate.  Rates  from  northern  and  eastern  cities  are  consider- 
ably higher  to  Greensboro  and  Raleigh  than  to  Danville,  being 
first  class  from  New  York  to  Danville  66  cents,  Raleigh  84 
cents,  and  Greensboro  84  cents.  The  same  is  true  of  rates  from 
New  Orleans  and  from  the  West.  Thus,  the  rate  on  molasses  is 
37  cents  to  Danville  against  47  cents  to  Raleigh  and  44  cents 
to  Greensboro.  The  first-class  rate  from  Chicago  is  $1.08  to 
Danville,  and  $1.33  to  Raleigh  and  Greensboro.  Flour  from 
Chicago  takes  a  rate  of  19  cents  to  Lynchburg,  34  cents  to  Dan- 
ville, and  43  cents  to  Raleigh  and  Greensboro.  This  is  true 
with  respect  to  rates  from  all  directions  in  Southern  Railway  ter- 
ritory south  and  southwest  of  Danville.  Traffic  for  Raleigh 
and  Greensboro  would  not  pass  through  Danville  ordinarily,  and 
need  not  in  any  event,  but  these  towns  are  in  the  vicinity  of 
Danville,  and  are  in  competition  with  that  city  in  much  the  same 
way  that  Danville  competes  with  Lynchburg ;  and  there  are 
many  instances  in  which  traffic  from  New  Orleans  and  from  the 
West  bears  a  higher  rate  to  points  which  are  strictly  interme- 
diate than  to  Danville. 

The  rates  of  the  Southern  Railway  are  apparently  adjusted 
largely  upon  the  "  basing  point "  system,  which  so  generally  pre- 
vails in  territory  south  of  the  Ohio  and  east  of  the  Mississippi 


1  1  I  KAILWAV    I'UOIJLEMS 

rivers.  This  system  h;is  been  often  referred  to  and  commented 
upon  l)v  the  Connnission,  and  need  not  be  gone  into  here.  As 
is  well  nnderstood,  the  central  idea  of  that  system  is  the  higher 
intermediate  rate.  There  is  nothing  in  this  case  to  sliow  what 
the  effect  upon  the  revenues  of  the  Southei-n  road  would  be  if 
the  rule  contended  for  by  the  complainants  were  applied  to  all 
this  intermediate  territory,  and  those  rates  reduced  to  the  level 
of  Lynchburg  and  Richmond.  It  is  certain,  however,  that  such 
an  application  of  the  4th  section  would  result  in  a  most  sweep- 
ing reduction  of  rates,  and  would  very  seriously  impair  the  in- 
come of  the  Southern  Railway  unless  the  volume  of  traffic  was 
very  materially  increased ;  it  might  even  go  to  the  length  stated 
by  the  Traffic  Manager  of  that  company,  of  entii'ely  eliminating 
the  profits  accruing  from  the  transaction  of  business  in  that 
territory.  ******* 

Co7iclusions 

******** 

As  stated  in  the  St.  Cloud  Casc,^  the  question  for  this  Com- 
mission is  one  of  fact  arising  upon  the  whole  situation.  We 
are  to  consider  the  interest  of  the  producing  market,  the  consum- 
ing market  and  the  carriers,  and  upon  the  whole  to  determine 
whether  there  is  such  a  dissimilarity  of  circumstances  and  con- 
ditions as  justifies  the  rates  in  question.  In  the  case  before  us 
we  have  nothing  to  do  with  the  market  of  production,  for,  so  far 
as  the  testimony  shows,  there  is  no  question  as  to  what  market 
should  supply  Lynchburg,  Danville  and  the  surrounding  locali- 
ties, nor  what  market  should  receive  the  products  of  these 
localities.  It  is  simply  a  questicm  of  the  avenues  by  which 
supplies  shall  be  transported  to  and  products  carried  from  this 
territory,  or,  in  other  words,  of  competition  between  carriers 
serving  the  same  markets. 

We  have  held  in  complaints  under  the  4th  section,  that  a  case 
for  the  complainant  was  made  out  by  the  mere  showing  of  the 
higher  rate  to  the  intermediate  point,  and  that  the  defendant 
was  thereupon  required  to  justify  these  rates.    In  the  present 

J  Vide,  p.  297,  supra. 


THE  DANVILLE,  VA.,  CASE  415 

instance  the  complainant  has  gone  further,  and  has  shown  in  the 
first  instance  the  injurious  effects  wliich  tliese  discriminations 
inflict  upon  Danville.  We  may  follow  the  same  order,  and 
inquire  first  whether  Danville  is  actually  injured,  and  to  what 
extent,  by  the. adjustment  of  rates  which  is  complained  of. 

The  testimony  establishes  as  a  matter  of  fact  that  the  burden 
thereby  imposed  upon  the  complainants  is  a  most  serious  one. 
The  facts  in  this  connection  have  been  already  stated  and  need 
not  be  repeated  here.  . .  .  The  case  appeals  to  us  more  strongly, 
perhaps,  for  the  reason  that  Danville  is  a  larger  community 
than  usually  prefers  complaints  of  this  sort.  It  cannot  be  said 
to  be  a  little  village  which  has  no  right  to  expect  to  do  business, 
for  it  is  a  city  which  in  the  past  has  done  bi;siness  and  whose 
people  desire  to  continue  it.  The  complainants  have  clearly 
established  the  injurious  effects  which  result  to  them  from  the 
obnoxious  rates. 

It  does  not  follow  from  this  alone  that  the  rates  in  question 
are  unjustifiable.  Deserted  warehouses  and  depreciated  values 
are  always  sad  objects  to  contemplate,  but  they  often  occur  in 
the  development  of  society;  and  if  the  avenues  of  commerce 
have  so  changed  as  to  dry  up  the  prosperity  of  this  particular 
locality,  the  Interstate  Commerce  Law  cannot  grant  relief,  for 
that  law,  as  has  been  often  said,  was  not  intended  to  hamper, 
but  to  promote,  trade  and  commerce.  We  turn,  therefore,  to 
the  justification  of  the  defendant,  for  the  purpose  of  ascertain- 
ing whether  the  hardship  which  is  inflicted  upon  these  com- 
plainants is,  under  all  the  circumstances,  a  reasonable  one.  As 
stated  by  the  defendant  that  justification  is  this  :  Owing  to  com- 
petitive conditions  the  Baltimore  rate  from  almost  all  direc- 
tions is  an  extremely  low  one.  When  the  Chesapeake  &  Ohio 
Railway  was  completed  from  Cincinnati  to  Norfolk  the  manage- 
ment of  that  property  determined  to  put  Richmond  and  Norfolk 
upon  an  equality  with  Baltimore.  Subsequently,  by  the  acqui- 
sition of  the  Richmond  &  Allegheny  Railroad,  Lynchburg  came 
to  be  on  the  main  line,  and  was  given  the  beJiefit  of  the  same 
rate.  When  the  Norfolk  &  Western  Railway  was  constructed 
to  Lyncliburg  and  Norfolk  it  found  in  effect  and-  adopted  this 


41()  KAII.WAV    I'KOHLEMS 

systiMu  of  rate  niakinjj^.  The  Southern  came  hist  of  all  into  the 
tielcl  of  competition.  Jt  simply  accepted  the  rates  which  it 
already  found  in  effect  at  Lynchburg,  Richmond  and  Norfolk. 
Its  rate  to  Danville  is  a  reasonable  one.  The  rate  to  Lynchburg 
is  unreasonably  low,  but  yields  to  the  Southern  Company  some- 
thing above  the  actual  cost  of  movement.  By  handling  this 
trafKc  through  Danville  the  rate  to  Danville  is  not  changed, 
Danville  is  not  therefore  injured,  and  the  Southern  Railway  is 
to  an  extent  benefited. 

The  facts  have  been  already  stated  in  our  findings  of  fact. 
The  Baltimore  rate  is  an  extremely  low  one.  The  Chesapeake 
V.V  Ohio  did  determine  to  put  Richmond,  Lynchburg  and  Nor- 
folk upon  the  same  basis  with  Baltimore.  The  Norfolk  & 
Western  did  adopt  the  same  policy.  The  Southern  Railway  did 
enter  this  competitive  field  last,  and  did  at  the  outset  meet  the 
rates  which  it  found  in  effect  by  the  Chesapeake  &  Ohio  and 
the  Norfolk  &  Western.  It  is  not  true  that  the  Baltimore  rate 
has  during  all  the  time  since  the  completion  of  the  Chesapeake 
&  Ohio  determined  the  Richmond  rate.  Upon  the  contrary,  the 
Baltimore  and  the  Norfolk  rate  have  mutually  affected  each 
other.  Competition  has  at  times  forced  down  the  Norfolk  rate 
below  that  of  Baltimore,  and  at  times  vice  versa.  The  resulting 
rate  has  always  been  a  low  one  as  compared  with  other  rates. 
It  cannot  be  found  as  a  fact  that  the  Southern  Railway  has 
simply  accepted  the  rates  named  by  its  competitors. 

The  argument  urged  by  the  defendant  is  not  new.  It  is  the 
theory  upon  which  every  trafific  manager  justifies  in  every  case 
the  making  of  the  lower  rate  to  the  more  distant  point.  If 
proof  of  the  facts  upon  which  that  deduction  rests  were  a  suffi- 
cient justification,  there  are  few,  if  any,  violations  of  the  4th 
section  which  could  not  be  justified. 

That  argument  omits,  however,  one  most  important  factor, 
namely,  the  interest  of  the  public.  This,  as  well  as  the  interest 
of  the  carrier,  must  be  considered.  The  Southern  road  insists 
in  this  case  that  Danville  would  not  be  benefited  if  it  should 
withdraw  from  Richmond,  Lynchburg  and  Norfolk  business. 
But  this  cannot  be  affirmed.    The  desire  to  transact  business  at 


THE  DANVILLE,  YA.,  CASE  417 

the  more  distant  point  is  a  continual  inducement  to  the  Southern 
road  to  obtain  an  equitable  adjustment  of  rates  between  the 
intermediate  and  the  more  distant  point.  If  the  Southern  can 
only  do  business  at  Lynchburg  by  procuring  a  just  relation  of 
rates  between  Lynchburg  and  Danville,  it  becomes  for  the  inter- 
est of  the  Southern  road  to  secure  that  adjustment  of  rates,  and 
it  will  use  all  its  enormous  power  to  that  end.  To-day  the 
Southern  Railway  constructs  its  Danville  tariffs  with  reference 
i  to  its  own  interest  alone.  An  order  requiring  a  proper  relation 
of  rates  between  Danville  and  Lynchburg  as  the  condition  of 
transacting  business  at  Lynchburg  compels  that  company  to 
consider  the  interest  of  Danville  as  well  as  its  own.       *       * 

In  considering  this  case  it  ma}^  be  well  to  refer  separately  to 
the  rates  from  each  direction  involved,  and  first  the  rates  from 
New  York. 

The  transportation  from  New  York  to  Norfolk  is  the  same 
whether  traffic  is  destined  to  Lynchburg  or  Danville.  The  dis- 
tance from  Norfolk  to  Danville  is  205  miles  by  the  Atlantic  & 
Danville  Railway,  which  is  the  direct  line.  For  the  year  end- 
ing June  30,  1899,  that  road  was  operated  by  an  independent 
company,  and  during  that  year  its  gross  receipts  were  '|!2083.97 
per  mile,  and  its  operating  expenses  71.11  per  cent  of  its  gross 
earnings.  .  .  . 

As  a  part  of  the  Southern  system  that  line  will  undoubtedly 
carry  much  more  traffic  from  Norfolk  to  Danville  than  it  did  as 
an  independent  line.  Still,  it  can  hardly  be  said  that  the  above 
divisions  afford  an  excessive  return  for  the  service  rendered. 
Whether  the  entire  rate  from  New  York  be  considered,  or  the  rail 
division  from  Norfolk  to  Danville,  the  present  rate  can  hardly  be 
said  to  be  extravagantly  high  ;  neither  is  it  extravagantly  low. 

There  are  three  lines  of  railway  by  wdiich  this  traffic  can  reach 
the  city  of  Danville:  The  Atlantic  &  Danville,  from  Norfolk, 
the  Richmond  &  Danville  from  Richmond,  and  the  Lynchburg 
&  Danville  from  Lynchburg.  Previous  to  the  acquisition  of 
the  Atlantic  &  Danville  by  the  Southern,  that  company,  as  we 
understand  the  testimony,  carried  traffic  fiom  Norfolk  to  Dan- 
ville by  a  fourth  route,  which  was  from  Norfolk  to  Greensboro, 


lis  1:A1L\VAV    I'lJOI'.LEMS 

■J70  mill's,  and  from  (Jreensboro  to  Danville,  48  miles.  If  these 
ntuios  were  all  indejH'iulent  lines,  and  all  competinL;'  bona  fide 
\vitlu)nt  ai^reement  amont]^  themselves,  as  to  the  Danville  rate, 
we  think  the  etYeet  must  he,  and  ought  to  be,  to  give  Danville 
a  rate  not  nuieh  above  that  of  Lynchburg. 

As  we  have  already  seen,  the  direct  line  from  Norfolk  to 
Lynchburg  is  by  the  Norfolk  &  Western,  and  the  distance,  204 
miles,  is  almost  identical  with  the  short  line  distance  to  Dan- 
ville. Lynchburg  is  upon  the  main  line  of  both  the  Norfolk  & 
Western  and  the  Chesapeake  &  Ohio,  whose  location  is  such, 
and  the  volume  of  whose  tiaiific  is  such,  that  they  can  perhaps 
afford  to  carr}-  freight  at  a  lower  price  than  the  Danville  lines. 
On  the  whole  we  are  impressed  that  legitimate  competitive 
conditions  would  entitle  Lynchburg  to  a  somewhat  lower  rate 
than  Danville  on  trafhc  from  the  North. 

We  turn  now  to  rates  from  New  Orleans.  It  has  been  seen 
that  the  Norfolk  &  Western,  the  Chesapeake  &  Ohio,  and  the 
Southern  all  carry  this  traffic  into  Lynchburg.  Such  traffic 
generally  leaves  New  Orleans  by  either  the  Illinois  Central, 
the  Queen  &  Crescent,  or  the  Louisville  &  Nashville.  There  are, 
however,  numerous  intermediate  routes  over  which  such  trafific 
may  pass.  All  trafiic  delivered  by  the  Southern  necessarily 
passes  through  Danville  and  6G  miles  beyond  to  Lynchburg. 
The  shortest  line  from  New  Orleans  to  Lynchburg  is  via  the  Louis- 
ville &  Nashville  to  Montgomery,  the  Atlanta  &  West  Point 
to  Atlanta  and  the  Southern  to  Lynchburg,  distance  971  miles. 
The  distance  by  this  line  to  Danville  is  905  miles.  The  shortest 
line  by  the  Norfolk  &  Western,  of  which  the  Southern  is  not 
a  part,  is  from  New  Orleans  to  Norton,  Va.,  via  the  Louisville 
&  Nashville,  and  from  Norton  to  Lynchburg  via  the  Norfolk  & 
Western,  the  distance  here  being  1265  miles.  The  shortest 
loute  by  the  Chesapeake  &  Ohio  is  1326  miles,  being  from 
New  Orleans  over  the  Illinois  Central  to  Louisville,  and  from 
there  by  the  Chesapeake  &  Ohio.  As  will  be  seen  by  referring 
to  the  findings  of  fact  there  are  sevei'al  routes  by  which  the 
distance  is  less  than  1265  miles,  in  all  of  which  the  Southern 
is  an  important  link. 


THE  DAXYILLE,  VA.,  CASE  410 

Taking  now,  for  the  purposes  of  comparison,  the  short  line 
via  the  Southern,  the  short  line  via  the  Norfolk  &  Western,  and 
the  short  line  via  the  Chesapeake  &  Ohio,  we  find  that  sugar 
in  car  loads  is  carried  from  New  Orleans  to  Lynchburg  at  the 
following  rates  per  ton  per  mile : 

via  the  Southern  6.59  mills  ; 

via  the  Korfolk  &  Western  4.91  mills  ; 

via  the  Chesapeake  &  Ohio  4.82  mills. 

Upon  the  same  traffic  to  Danville  the  Southern  receives  9.49 
mills. 

Ordinarily  the  initial  carrier  makes  the  rate.  In  this  case  the 
Louisville  &  Nashville,  Queen  &  Crescent,  and  Illinois  Central, 
being  the  initial  carriers,  are  without  doubt  largely  responsible 
for  the  rate  to  Lynchburg,  while  the  Southern,  being  the  only 
carrier  which  enters  Danville,  can  control  the  rate  to  that  point. 
In  fixing  the  rate  the  initial  carrier  would  consult  its  own  inter- 
est by  obtaining  as  long  a  haul  as  possible.  By  the  Norfolk  & 
Western  route,  above  referred  to,  the  Louisville  &  Nashville 
obtains  a  haul  of  1003  miles  from  New  Orleans  to  Norton, 
while  the  Norfolk  &  Western  has  a  haul  of  only  262  miles. 
Other  things  being  equal,  the  Louisville  &  Nashville  would 
carry  New  Orleans  traffic  for  Lynchburg  by  this  route.  These 
competitive  conditions,  this  bidding  for  business  via  the  differ- 
ent lines  entering  Lynchburg,  have  undoubtedly  tended  to  force 
down  the  Lynchburg  rate. 

While  we  are  hardly  prepared  to  say  upon  the  testimony  in 
this  case  that  the  rate  from  New  Orleans  to  Danville  upon 
sugar,  molasses,  coffee  and  rice  is  unreasonable  when  considered 
in  and  of  itself,  we  are  strongly  of  impression  that  it  may  be. 
We  certainly  do  not  find  that  it  is  reasonable,  and  in  view  of 
the  rates  in  which  the  Southern  road  participates  by  various 
routes,  and  the  rates  which  its  competitors  make  upon  this  same 
traffic  by  other  lines,  those  rates  must  be  grossly  unreasonable. 
'  So  far  as  the  testimony  shows,  and  so  far  as  we  have  any 
understanding  of  the  matter,  here  is  no  competition  of  contend- 
ing markets.     With  respect  to  this  traffic  from  New  Orleans, 


A'2{)  \l\\\A\\\    riJOl'.I.KMS 

I.yiu'liburij:  is  upon  no  great  llunoutj^hrarc  wliich  in  its  struggle 
for  eH)nipolitive  business  heyonil  gives  to  it  an  unduly  low  rate, 
riiere  is  nothing  except  the  mere  competition  between  several 
different  lines  of  railway,  and  yet  that  competition  has  brought 
it  about  that  merchandise  is  carried  for  the  inhabitants  and 
merchants  of  Lynchburg  at  an  average  rate  per  ton  per  mile  of 
just  about  one  half  what  the  Southern  receives  for  the  same 
service  when  rendered  for  the  inhabitants  and  merchants  of 
Danville,  but  6ij  miles  distant,  and  tliat,  too,  although  the 
Southern  carries  this  traffic  througli  Danville  under  exactly  the 
same  physical  conditions  for  Lynchburg  as  when  it  is  destined 
for  Danville  itself.  We  very  much  question  whether  in  serving 
these  two  competitive  localities  competition  between  carriers 
should  be  allowed  to  have  any  such  unreasonable  and  unjust 
effect  as  this. 

Rates  from  the  West  to  Danville  and  Lynchburg  exhibit  some 
peculiar  features.  It  will  be  remembered  that,  treating  the 
Cincinnati,  New  Orleans  &  Texas  Pacific  as  a  part  of  the 
Southern  system,  both  the  Chesapeake  &  Ohio  and  the  South- 
ern reach  Louisville  and  Nashville  over  their  own  lines.  The 
Norfolk  &  Western  reaches  both  these  points  by  its  connections. 
These  three  lines,  therefore,  are  competitors  for  traffic  between 
Cincinnati  and  Louisville  on  the  west,  and  Lynchburg  and 
Danville  on  the  east.  By  the  Southern  route  traffic  passes 
through  Danville  to  Lynchburg ;  by  the  two  other  routes  it 
passes  through  Lynchburg  to  Danville. 

By  referring  to  the  findings  of  fact  it  will  be  seen  that  the  dis- 
tance by  the  Southern  to  Danville  is  considerably  greater  than 
by  either  the  Norfolk  &  Western,  or  the  Chesapeake  &  Ohio  to 
Lynchburg.  It  will  also  be  remembered  that  both  the  Norfolk 
&  Western  and  the  Chesapeake  &  Ohio  transact  a  large  through 
business  both  for  export  and  domestic  consumption  via  Lynch- 
burg, and  that  Lynchburg  takes  the  same  rate  which  is  granted 
to  all  this  competitive  business.  An  examination  of  the  rates 
themselves  in  effect  from  Cincinnati  and  Louisville  to  Danville' 
and  Lynchburg,  respectively,  shows  that  there  is  no  very  extrav- 
agant difference  in  favor  of  Lynchburg  upon  class  rates.    The 


THE  DANVILLE,  YA.,  CASE  421 

widest  difference  seems  to  be  made  upon  grain  and  flour.  We 
hardly  think  it  can  be  said  that  the  rates  from  these  points  to 
Danville  are  in  the  main  unreasonably  high  when  considered  of 
themselves,  if  it  is  possible  to  measure  a  rate  by  any  such  standard. 

Traffic  from  Chicago,  St.  Louis  and  other  points  similarly 
situated  comes,  or  may  come,  to  these  three  lines  at  either  Cin- 
cinnati or  Louisville,  and  the  rate  through  either  one  of  those 
points  must  determine  the  rate  through  all  other  points.  The 
distance  from  points  beyond  Louisville  and  Cincinnati  by  these 
competitive  lines  is  the  same  respectively  as  from  those  two 
cities,  and  the  cost  of  movement  is  substantially  the  same 
whether  the  traffic  originates  at  Louisville  or  Cincinnati,  or 
whether  it  comes  to  these  lines  at  those  points.  We  might 
naturally  expect,  therefore,  that  the  same  difference  in  rate  to 
Lynchburg  and  Danville  would  obtain  in  the  case  of  traffic  from 
beyond  as  in  case  of  traffic  which  originates  at  Louisville  or  Cin- 
cinnati. Such  is  not,  however,  the  fact.  Traffic  originating  at 
Chicago,  St.  Louis,  and  all  corresponding  territory  takes  a  much 
lower  rate  proportionately  to  Lynchburg  than  does  Cincinnati 
and  Louisville  traffic.  Thus,  the  first-class  rate  from  Cincin- 
nati is  to  Lynchburg  62  cents,  to  Danville  68  cents,  a  difference 
of  but  6  cents  per  hundred  pounds.  From  St.  Louis  the  same 
class  rate  is  to  Lynchburg  84  cents,  to  Danville  -11,06,  a  differ- 
ence of  22  cents  per  hundred  pounds.  From  Chicago  the  first- 
class  rate  to  Lynchburg  is  7  2  cents,  while  the  corresponding  rate 
to  Danville  is  $1.08,  a  difference  of  36  cents  against  Danville. 
In  case  of  those  commodities  which  are  most  consumed  the  dif- 
ference is  even  more  marked.  Thus,  the  flour  rate  from  Cin- 
cinnati to  Lynchburg  is  16  cents,  and  to  Danville  22  cents  per 
hundred,  a  difference  of  6  cents ;  while  from  Chicago  it  is  19  cents 
to  Lynchburg,  and  34  cents  to  Danville,  a  difference  of  15  cents. 
Since  Danville  desires  to  purchase  largely  in  the  markets  of 
St.  Louis,  Chicago,  and  corresponding  territory,  it  follows  that 
these  rates  are  the  ones  in  which  that  community  is  particularly 
interested. 

The  reason  for  this  discrimination  has  been  fully  stated  in 
the  findings  of  fact.     It  arises  out  of  the  rule  that  Lynchburg 


4L>-j  KAii.w.w  rnor. I.K.MS 

shall  taki'  tlio  l>altiinori'  nitc.  The  Danville  rate  is  in  all  cases 
made  by  adding  the  local  rate  iVoni  Chicago  to  the  Ohio  river 
to  the  Cincinnati  or  Louisville  rate  from  the  Ohio  river,  while 
the  Lynchburg  rate  is  determined  by  the  Baltimore  rate  from  the 
locality  in  question.  On  trafhc  from  Chicago  to  Lynchburg  the 
carrier  from  Chicago  to  the  Ohio  river  receives  23  cents,  and 
the  carrier  from  the  Ohio  river  to  Lynchburg  49  cents.  On  the 
same  trailic  destined  to  Danville  the  carrier  north  of  the  Ohio 
river  receives  40  cents,  while  the  carrier  from  that  river  to  Dan- 
ville receives  68  cents.  If  the  traffic,  whether  originating  at 
Cincinnati  or  Louisville,  reaches  Danville  via  Lynchburg,  the 
Southern  exacts  its  full  local  rate  of  36  cents.  The  divisions 
above  stated  are  those  of  the  first-class  rate,  but  other  rates 
are  divided  upon  the  same  basis.  Broadly  stated,  carriers  from 
Chicago  and  St.  Louis  prorate  upon  business  to  all  points  on  the 
Norfolk  &  Western  Railroad.  To  all  points  in  territory  south 
of  the  Norfolk  &  Western  Railioad  there  is  no  prorating,  but 
each  carrier  receives  the  sum  of  its  locals  to  and  from  the  Ohio 

This  system  of  rate  making  into  Southern  territory  by  add- 
ing together  the  sums  of  the  locals  to  and  from  the  Ohio  river 
is  not  before  us  as  a  general  scheme  in  this  case.  We  are  only 
considering  it  with  reference  to  the  city  of  Danville,  and  with 
reference  to  that  city  we  hold  it  to  be  utterly  unreasonable. 
Danville  is  situated  but  66  miles  south  of  Lynchburg.  It  is 
in  competition  with  Lynchburg.  Now,  these  carriers  have  no 
right  to  put  in  effect  a  system  of  rates  which  prohibits  the  city 
of  Danville  from  transacting  business  in  competition  with  the 
city  of  Lynchburg.  Whether  or  not  they  may  make  their  rates 
into  Southern  territory  in  this  manner  is  something  about 
which  we  express  no  opinion,  but  if  they  desire  to  do  that  they 
must  so  adjust  their  rates  in  passing  from  Norfolk  &  Western 
to  Southern  territory  as  not  to  annihilate  the  city  of  Danville. 
They  have  no  right  to  put  that  locality  between  the  upper  and 
nether  millstone  of  these  two  schemes  of  rate  making.  Rates  to 
Danville  must  be  adjusted  with  relation  to  rates  to  competitive 
localities  like  Lynchburg,  and  the  carriers  from  the  point  of 


THE  DANVILLE,  YA.,  CASE  423 

origin  to  destination  should  prorate  in  these  rates  if  tliey  par- 
ticipate in  either  Lynchburg  or  Danville  business. 

Lynchburg  is  situated  but  QQ  miles  from  Danville.  Danville 
rates  from  most  western  territory  and  from  New  Orleans  base  upon 
Lynchburg ;  that  is,  they  are  made  by  adding  to  the  Lynchburg 
rate  the  Southern  local  rate  from  Lynchburg  to  Danville.  We  do 
not  think  that  the  rate  to  Danville  upon  this  through  business 
from  New  Orleans  or  from  the  West  ought  to  be  constructed  upon 
that  basis.  Whatever  competitive  conditions  may  be  at  Lynch- 
burg, Danville  to  some  extent  should  enjoy  the  benefit  of  those 
competitive  conditions  by  reason  of  its  proximity,  for  by  reason  of 
that  same  proximity  it  is  thrown  into  competition  with  Lynchburg. 

This  traffic  is  in  no  sense  local  traffic,  but  is  in  every  sense 
through  traffic.  There  is  no  loading  at  Lynchburg,  no  billing 
at  Lynchburg,  no  soliciting  of  traffic  at  Lynchburg.  It  is  in  fact 
a  through  shipment,  and  to  some  extent  Danville  should  enjoy 
the  benefit  of  that  fact.  We  do  not  mean  that  the  Southern 
Railway  may  not  exact  from  the  Norfolk  &  Western  or  the 
Chesapeake  &  Ohio  a  division  upon  this  business  when  it  moves 
by  way  of  Lynchburg,  which  is  equal  to  its  full  local  rate.  Per- 
haps it  may  do  that  in  the  protection  of  its  own  line.  About 
that  we  are  called  upon  to  express,  and  we  do  express,  no  opin- 
ion. What  we  say  is  that  in  determining  the  Danville  rate,  the 
Southern  Railway,  which  dominates  that  situation,  must  recog- 
nize the  fact  that  this  business  is  through  business  upon  which 
Lynchburg,  a  competitor  of  Danville,  enjoys  a  low  through  rate, 
and  upon  which  Diinville  itself  is  entitled  to  a  through  rate. 

If  the  various  railroad  properties  leading  from  Danville  north 
to  the  line  of  the  Norfolk  &  Western  and  Chesapeake  &  Oliio 
were  operated  to-day  by  their  original  builders  there  would  be 
three  independent  avenues  by  which  these  northern  roads  could 
obtain  access  to  the  city  of  Danville.  These  lines,  however, 
have  all  been  absorbed  by  one  corporation.  That  corporation 
controls  every  line  leading  to  the  city  of  Danville,  with  the  un- 
important exception  of  the  Danville  &  Western,  and  by  virtue  of 
that  fact  it  is  able  to  exact,  as  it  does,  its  full  local  rate  from 
Lynchburg  to  Danville. 


424  TJAIT.WAV   rK(^r.LEMS 

As  already  remarked,  the  Southern  Railway  is  the  consolida- 
tion of  numerous  independent  railroad  properties.  It  has  be- 
come throu*:^h  this  process  of  growth  a  great  railroad  system 
embracing  to-day  a  mileage  of  more  than  6000  miles.  In  this 
operation  properties  which  were  wortiiless  have  been  put  to- 
gether to  form  a  valuable  whole.  The  physical  condition  of 
those  properties  has  been  enormously  improved.  The  facilities 
afforded  to  their  patrons  have  been  increased.  Tlie  whole  ter- 
ritory involved  must  be  benefited  by  this  amalgamation,  so  far 
as  its  physical  service  is  concerned. 

This  enterprise  is  a  perfectly  legitimate  one.  The  men  who 
have  conceived  and  executed  it  are  entitled  to  a  fair  return  upon 
the  money  which  has  been  actually  invested  in  it.  They  are 
entitled,  in  addition,  to  a  reasonable  profit  upon  the  ability  to 
conceive  and  execute  a  project  of  this  sort.  They  have  no  right 
to  exact  a  return  upon  an  extravagant  capitalization,  but  what- 
ever has  honestly  and  in  good  faith  and  reasonably  gone  into 
this  enterprise  should  be  protected. 

On  the  other  hand,  the  people  in  this  territory  are  entitled  to 
protection.  The  Southern  Railway,  hy  virtue  of  the  fact  that  it 
has  obtained  possession  of  and  now  controls  the  avenues  of  com- 
munication hy  rail  between  the  city  of  Danville  and  the  outside 
world,  lias  no  right  to  deprive  that  community  of  the  competi- 
tive advantages  which  the  enterprise  of  its  citizens  in  one  way  or 
another  had  secured,  and  upon  the  strength  of  which  business 
conditions  have  grown  up.  It  must  recognize  the  geographical 
position  and  the  commercial  importance  of  the  city  of  Danville. 

We  fully  realize  the  serious  consequences  to  the  Southern 
Railway  of  any  reduction  in  its  Danville  rate,  or  in  correspond- 
ing rates  to  other  points.  Such  reduction  means  a  deduction 
from  its  net  revenues.  As  applied  to  the  volume  of  business 
handled  at  Danville  alone,  such  reduction  must  be  very  consid- 
erable, —  it  cannot  from  the  testimony  in  this  case  be  determined 
just  how  considerable. 

Upon  the  other  hand  we  think  that  as  an  offset  to  this  the 
Southern  would  obtain  some  additional  revenue  by  virtue  of 
the  increased  amount  of  business  at  Danville.   The  ability  to  do 


THE  DANVILLE,  VA.,  CASE  425 

business  at  that  point  depends  largely  upon  the  freight  rate. 
The  amount  of  traffic  handled  in  and  out  of  Danville  is  deter- 
mined by  the  volume  of  business  transacted  thei-e,  —  by  the  pros- 
perity of  the  community.  Whether  the  Southern  Railway  shall 
reduce  its  rates  to  the  city  of  Danville  with  the  hope  of  thereby 
stimulating  an  additional  flow  of  traffic  is  purely  a  question 
of  policy  with  which  this  Commission  has  ordinarily  nothing  to 
do  ;  but  when  we  are  commanded  to  consider  the  interests  of  all 
parties,  we  must  consider  what  the  probable  effect  of  our  order 
will  be  upon  the  carrier  interested.  In  this  view  we  are  bound 
to  inquire  what  effect  it  will  have  upon  the  volume  of  traffic, 
and  the  consequent  increase  or  decrease  of  revenue.  Any  de- 
velopment at  Lynchburg  is  necessarily  shared  by  the  South- 
ern with  the  Norfolk  &  Western  and  the  Chesapeake  &  Ohio, 
whereas  any  corresponding  development  at  Danville  belongs  to 
the  Southern  Railway  Company  alone.  We  feel  that  a  reduction 
in  the  Danville  rate  might  ultimately  be  for  the  advantage  of 
this  defendant. 

Under  our  original  interpretation  of  the  4th  section  the  duty 
of  this  Commission  in  determining  whether  that  section  had  been 
violated  was  a  comparatively  simple  one.  We  were  confined  to 
inquiring  whether  competition  between  carriers  not  subject  to 
the  Act  to  Regulate  Commerce  influenced  or  controlled  the  rate 
at  the  more  distant  point.  If  it  did,  that  created  the  dissimilar 
circumstances  and  conditions.  Now,  however,  we  are  bidden  to 
examine  the  whole  situation,  and  to  determine  whether,  tak- 
ing all  things  into  account,  the  conditions  which  surround  that 
situation  justify  the  charging  of  the  higher  rate  at  the  inter- 
mediate point.  It  is  impossible  to  apply  to  the  solution  of  that 
question  any  definite  rule.  Each  case  has  to  be  considered  upon 
its  own  peculiar  facts.  It  is  difficult  in  every  case  to  determine 
what  ought  to  be  done  in  justice  to  the  public  and  to  the  carrier, 
and  it  is  even  more  difficult  to  state  the  reasons  for  that  deter- 
mination. We  have  given  this  question  the  best  attention  we 
could.  It  is  an  extremely  perplexing  one,  but  it  nmst  be  de- 
cided, and,  without  attempting  to  state  the  reasons  more  fully 
than  has  been  already  df)ne,  our  conclusion  is  this  : 


426  I;AIl,^\A^    imjoi'-lkms 

W'o  think  that  under  all  the  eireunistances  and  conditions  the 
rate  to  Lynehhuii^  may  ])ropeily  he  somewhat  lower  than  the 
rate  to  Danville.  We  do  not  think  that  the  present  difference  in 
rates  is  justitiahle;  or,  in  other  words,  we  do  not  think  that  the 
eireumstanees  and  conditions  justify  the  rates  now  in  force.  It 
is  our  opinion  that  rates  from  northern  and  eastern  cities  to 
Danville  and  rates  from  New  Orleans  upon  the  commodities 
mentioned  in  the  complaint  to  Danville  should  not  exceed  those 
to  Lynchburg  hy  more  than  10  per  cent,  and  that  rates  between 
Danville  and  the  West  should  not  exceed,  those  between  Lynch- 
burg and  the  West  by  more  than  15  per  cent.  This  also  applies 
to  the  rate  on  tobacco  from  Danville  to  Louisville.  It  may  well 
be  called  outrageous  to  impose  upon  the  chief  industry  of  Dan- 
ville a  rate  from  Danville  to  Louisville  15  cents  above  the  rate 
from  Lynchburg  to  Louisville,  when  the  difference  in  rates 
upon  that  class  of  merchandise  in  the  reverse  direction  is  only 
2i-  cents.  ******* 

[No  order  w^as  issued  by  the  Commission  at  its  first  hearing  ; 
but  ten  months  later,  in  November,  1900,  after  a  rehearing  of  the 
case,  a  new  opinion  was  rendered,  concluding  as  follows.  —  Ed.] 

The  Southern  Railway  shows  that  in  the  year  1899  it  earned 
nothing  upon  its  $120,000,000  of  common  stock,  and  urges  that 
any  order  of  this  Commission  which  depletes  the  revenues  of 
that  company  deprives  the  owners  of  this  stock  of  their  property 
without  due  process  of  law. 

This  common  stock  was  issued  as  a  part  of  a  reorganization 
scheme  under  which  the  Southern  Railway  Company  came  into 
existence.  It  does  not  appear  that  the  persons  to  whom  this  stock 
was  originally  issued  ever  paid  one  dollar  in  actual  value  for  it. 
It  simply  appears  that  the  stock  is  outstanding.  This  is  not 
enough.  Something  more  is  needed  when  a  claim  of  this  kind 
is  set  up  than  the  mere  fact  of  the  existence  and  amount  of  capi- 
talization. It  does  not  rest  in  the  whim  of  a  reorganization 
committee  in  Wall  Street  to  impose  a  perpetual  tax  upon  that 
whole  southern  country.  In  the  year  1899  the  Southern  Rail- 
way earned  net  about  4  per  cent  on  -140,000  a  mile  of  the  mileage 


THE  DAKVILLE,  VA.,  CASE  427 

of  its  entire  system.  That  system  extends,  as  a  rule,  through 
sparsely  populated  territories ;  no  difficult  and  expensive  en- 
gineering feats  were  involved  in  its  construction,  nor  has  it 
in  proportion  to  its  extent  many  expensive  terminals.  It  will 
hardly  be  claimed  that  the  cost  of  reproducing  that  property  in 
its  present  state  would  equal  840,000  a  mile. 

The  Southern  Railway  is  of  great  benefit  to  the  territory 
which  it  serves,  and  the  money  invested  in  that  enterprise  is 
entitled  to  the  most  careful  protection ;  but  the  property  of  the 
citizens  of  Danville  is  just  as  sacred  as  are  the  securities  of 
that  company.  No  order  should  be  made  by  this  Commission 
which  will  deprive  it  of  a  dollar  in  revenue  to  which  it  is  justly 
entitled,  but  we  find  nothing  in  its  financial  condition,  as  shown 
by  the  testimony,  to  prohibit  a  change  of  rates  which  will  reduce 
to  a  limited  extent  its  receijjts. 

This  is  not  a  question  of  revenue  altogether.  It  is  a  question, 
to  an  extent,  of  right  and  wrong.  The  beggar  upon  the  street 
has  no  right  to  steal  merely  because  he  is  hungry ;  nor  has  the 
Southern  Railway  a  right  to  do  an  unlawful  act  simply  because 
it  needs  revenue.  The  state  of  its  revenues  has  a  bearing  upon 
the  lawfulness  of  the  act,  but  is  not  conclusive. 

Railway  managers  are  prone  to  assume  that,  in  the  adjust- 
ment of  their  rates,  only  the  interest  of  their  own  properties 
must  be  considered.  Mr.  Gulp  was  asked  what  weight  he  gave 
to  the  interest  of  the  city  of  Danville,  to  its  proximity  to  Lynch- 
burg, to  the  fact  that  it  was  a  competitor  of  Lynchburg,  and 
his  reply  in  effect  was,  none.  This  is  neither  just  nor  lawful. 
Railways  are  public  servants  and  subject  to  public  control.  In 
the  exercise  of  that  control  the  public  has  enacted  that  they 
shall  not  unduly  discriminate  in  favor  of  one  locality  against  an- 
other, and  that  they  shall  not  charge  more  for  the  short  than  for 
the  long  haul  under  similar  circumstances  and  conditions.  The 
Supreme  Court  has  declared  that  in  determining  what  are  sim- 
ilar circumstances  and  conditions,  and  what  is  undue  discrimi- 
nation, reference  must  be  had  to  the  interest  of  all  parties,  not 
merely  the  railway.  After  considering  all  the  circumstances  and 
conditions  in  the  present  case  wc  have  sustained  the  coniplaiiit 


4*J8  KAILW.W     l'i;(H'.LIvM8 

of  the  city  of  Danville,  and  have  indieated  in  a  general  way 
those  changes  in  rates  whicli  sliould  be  made.  If  upon  an 
actual  trial,  in  good  faith,  the  effect  of  those  changes  upon  the 
revenue  of  the  Southern  Railway  should  prove  to  be  more  seri- 
ous than  anticipated,  we  might  modify  the  opinion  already  ex- 
pressed, but  there  is  nothing  in  the  testimony  presented  upon 
this  motion  for  rehearing  which  leads  us  to  do  so  now,  and  the 
motion  is  denied. 

No  order  will  be  made  until  December  31,  1900.  If  the 
Southern  Railway  signifies  by  that  time  its  disposition  to  en- 
deavor to  make  this  readjustment,  such  further"  time  will  be 
allowed  as  may  be  reasonably  necessary.  Otherwise  an  order 
will  then  issue  in  the  premises. 


XVII 
TRANSCONTINENTAL  FREIGHT  RATES 

The  St.  Louis  Business  Men's  League  Case^ 

Prouty,  Co77imissio7ier  : 

The  Business  Men's  League  of  St.  Louis,  the  complainant 
in  this  proceeding,  is  an  incorporated  body  whose  membership 
represents  some  two  thousand  persons,  fu-ms  and  corporations 
engaged  in  business  in  St.  Louis  and  that  vicinity.  The  com- 
plaint is  that  the  defendant  carriers  unjustly  discriminate  by 
their  tariil  rates  against  St.  Louis  and  other  jobbing  houses  of 
the  middle  west,  and  it  is  alleged  that  this  discrimination  is 
effected  in  the  following  ways  : 

1.  By  making  a  lower  rate  to  Pacific  Coast  terminals  than 
to  points  upon  the  coast  which  are  farther  east,  and  through 
which  traffic  must  pass  in  reaching  the  terminal  points. 

2.  By  making  a  blanket  rate  from  all  territory  east  of  the 
Missouri  river  to  Pacific  Coast  destinations. 

3.  By  undue  and  unreasonable  differences  between  car-load 
and  less  than  car-load  rates,  by  an  unjust  system  of  varied 
commodity  rates,  and  by  unreasonably  refusing  to  permit  ship- 
ment of  mixed  car  loads.  ***** 

The  complaint  puts  in  issue  the  system  of  rate  making  be- 
tween the  territory  east  of  the  Missouri  river  and  Pacific  Coast 
points  ;  and  in  order  to  understand  the  questions  raised  it  is 
necessary  to  state  briefly  what  that  system  is.  Only  west-bound 
rates  are  involved. 

Certain  points  upon  the  Pacific  Coast,  of  which  Los  Ange- 
les, San  Francisco  and  Portland  may  be  taken  as  illustrative 

1  Decided  November  17,  ]902.  Interstate  Commerce  Reports,  "Vol.  IX, 
pp.  318-372.  In  editing,  the  issues  concerning  mixed  car  loads  as  well  as  de- 
tails of  cost  of  less  than  car-load  service  have  been  omitterl  for  simplification. 
These  matters  as  well  as  transcontinental  rates  in  general  are  discussed  in 
Ripley's  Railroads:  Rates  and  Regulation.    (Index.) 


i;;()  KAILWAV    TKOULKMS 

rxainples,  are  designated  as  "•  Pacific  Coast  terminals,"  and  rates 
to  these  [)oints  are  known  as  "terminal  rates/'  There  are  "ter- 
minal class  rates,"  the  western  classification  being  used.  There 
are  also  "  terminal  commodity  rates,"  and  the  great  bulk  of  the 
tratlic  moves  under  such  latter  rates,  over  two  thousand  articles 
beino'  ikiukhI.  l^otli  class  and  commodity  terminal  rates  are  the 
same  from  a  given  eastern  point  to  all  Pacific  Coast  terminals. 

Stations  upon  the  direct  line  by  which  traffic  from  the  east 
reaches  a  terminal  are  called  ''  intermediate  "  points.  Rates  to 
such  points  are  made  by  adding  to  the  terminal  rate  the  local 
rate  froni  the  terminal  back  to  such  intermediate  point,  whether 
the  rate  in  question  be  class  or  commodity.  Thus,  Reno,  Ne- 
vada, is  upon  the  main  line  of  the  Central  Pacific,  155  miles 
east  of  Sacramento,  Califoi-nia,  a  terminal.  The  terminal  rate 
on  zinc  slab  from  Chicago  to  Sacramento  is,  C.  L.  (Car  Load) 
$.80  ;  L.  C.  L.  (Less  than  Car  Load)  $1.10.  The  local  rate  from 
Sacramento  to  Reno  is  C.  L.  $.78,  L.  C.  L.  $.87,  making  the 
rate  from  Chicago  to  Reno,  C.  L.  $1.58,  L.  C.  L.  $1.98. 

Class  rates  are  named  to  intermediate  points  which  serve  as 
maxima  to  those  points ;  i.e.,  when  the  intermediate  rate  is  less 
than  the  terminal  plus  the  local  back,  the  lower  rate  prevails. 
As  an  illustration  of  this  we  may  take  the  rate  on  sheet  zinc 
from  Chicago  to  Reno.  The  terminal  rate  is  higher  than  on 
zinc  slab,  being  C.  L.  $1.25  and  L.  C.  L.  $1.75.  Adding  the 
local  back  from  Sacramento  we  have  a  rate  of  C.  L.  $2.03  ; 
L.  C.  L.  $2.62.  But  sheet  zinc  in  less  than  car  loads  under  the 
western  classification  is  4th  class,  and  in  car  loads  5th  class ; 
the  intermediate  class  rates  from  Chicago  to  Reno  are  4th  class, 
$2.10  and  5th  class  $1.85.  These  rates  apply  as  maxima,  and 
therefore  the  rate  on  sheet  zinc  from  Chicago  to  Reno  is  C.  L. 
$1.85  and  L.  C.  L.  $2.10.  The  rate  on  zinc  slab,  which  takes 
the  same  classification  as  sheet  zinc,  but  a  lower  terminal  rate, 
is  made  by  the  combination,  while  that  on  sheet  zinc  is  limited 
by  the  intermediate  class  rate.  There  are  also  a  few  intermedi- 
ate commodity  rates  which  apply  as  maxima,  and  have  the  same 
effect  in  establishing  the  point  to  which  the  combination  of  the 
terminal  and  local  back  will  apply. 


TRANSCONTINENTAL   FREIGHT  RATES  431 

It  will  be  seen  that  under  this  system  of  rate  making  the  rate 
upon  the  Pacific  Coast  increases  as  we  proceed  farther  east,  or 
as  the  distance  decreases,  until  limited  by  the  intermediate  class 
or  commodity  rate.  Rates  are  uniformly  higher  at  the  nearer 
intermediate  point  through  which  the  traffic  passes  than  at  the 
more  distant  terminal.  .  .  . 

The  complaint  also  attacked  the  method  of  rate  making  from 
territory  east  of  the  JNIissouri  river  to  the  Pacific  Coast,  and  this 
point  was  earnestly  pressed  by  the  complainants.  At  the  pres- 
ent time  these  rates  are  made  upon  what  is  known  as  the  blan- 
ket system  ;  that  is,  rates  from  all  that  territory  are  the  same. 
The  first-class  rate  for  instance  from  St.  Louis  to  San  Francisco 
is  i3  per  hundred  pounds  and  the  same  rate  obtains  from  New 
York.  .  .  .  Commodity  rates  follow  the  same  rule,  and  in  general 
it  may  be  stated  that  ...  all  common  points  east  of  the  Mis- 
souri river  take  the  same  rate  to  Pacific  Coast  terminals,  and  to 
those  points  which  base  upon  Pacific  Coast  terminals.  This  so- 
called  blanket  system  of  rate  making  is  vigorously  attacked  by 
the  complainants,  who  insist  that  what  are  termed  "  graded  "  rates 
should  obtain ;  that  is,  that  the  rate  should  increase  toward  the 
Atlantic  seaboard ;  and  as  one  reason  for  this,  it  is  asserted  that 
such  graded  rates  were  until  recently  in  effect. 

There  is  no  means  of  determining  exactly  what  these  rates 
were  previous  to  1887,  w^hen  carriers  were  first  required  by  law 
to  publish  and  file  their  tai'iffs.  An  examination  of  the  first 
transcontinental  tariff  filed  with  the  Commission  shows  that 
graded  rates  were  then  in  effect.  By  that  tariff  the  first-class 
rate  was,  from  the  Missouri  river  $4,  from  the  Mississippi 
$4.50,  from  Chicago  points  -^4.70 ;  while  east  of  Chicago  rates 
were  apparently  made  by  combination  upon  Chicago.  This 
tariff  seems  to  have  been  in  the  nature  of  an  experiment,  and 
very  frequent  changes  were  made  between  that  date  and  Janu- 
ary 1,  1889,  when  a  tariff  was  put  into  effect  which  continued 
substantially  the  same,  so  far  at  least  as  these  gradations  were 
concerned,  down  to  1894.  By  this  tariff  the  following  differ- 
entials or  grades  were  made :  from  the  Missouri  to  the  Missis- 
sippi 20  cents;  from  the  Mississippi  to  Chicago  20  cents;  from 


432  KAILW.W     I'lJor.LEMS 

Chicago  to  Cincinnati  5  cents  ;  from  Cincinnati  to  Pittsburg  5 
cents  :  and  from  rittsburg  to  New  York  20  cents.  Under  West- 
bound Tariff  No.  T  1,  effective  April  11,  1893,  which  continued 
in  eftcct  until  the  rate  war  of  1894,  the  first-class  rate  was 
as  follows:  from  the  Missouri  River  ?f 3;  from  the  Mississippi 
;J3.20  ;  from  Chicago  ^3.40;  from  Cincinnati  i!3.45 ;  from  Pitts- 
burg 83.50,  and  from  New  York  83.70.  The  same  principle 
wiis  applied  to  commodity  rates.  .  .  .  Previous  to  1894  the 
principle  of  graded  rates  was  uniformly  recognized  in  transcon- 
tinental tariffs. 

In  the  beginning  of  that  year,  owing  to  conditions  which 
will  be  hereafter  detailed,^  a  transcontinental  rate  war  occurred 
which  lasted  actively  for  two  years,  and  the  effects  of  which 
continued  for  some  time  afterwards.  One  of  the  first  results  of 
this  disturbance  was  to  abolish  the  graded  rate ;  first  as  far  east 
as  Chicago,  and  later  all  the  way  to  the  Atlantic  coast.  Under 
the  tariff  of  June  25, 1898,  which  is  said  to  have  restored  trans- 
continental rates  to  a  normal  condition,  this  blanket  system 
was  retained. 

The  contention  of  the  complainants  in  this  respect  is  in  favor 
of  the  middle  west  as  against  the  Atlantic  seaboard.  Since  St. 
Louis  is  more  than  one  thousand  miles  nearer  San  Francisco 
than  New  York  its  business  interests  insist  that  it  ought  to  be 
given  the  advantage  of  that  difference  in  distance.  The  defend- 
ants justify  the  present  tariff  upon  the  ground  of  water  com- 
petition, and  the  facts  bearing  upon  that  issue  will  be  stated 
later.  No  particular  industry  is  complaining.  The  testimony 
tended  to  show  and  we  find  that  since  1894,  when  graded  rates 
were  first  abolished  and  the  blanket  system  put  in  effect,  the 
middle  west  has  been  steadily  gaining  in  its  sales  upon  the  Pa- 
cific Coast  in  comparison  with  the  Atlantic  seaboard.  Pacific 
Coast  jobbers  now  buy  much  more  extensively  in  the  middle 
west  than  they  did  five  or  ten  years  ago.  Middle  west  jobbers 
sell  more  upon  the  Pacific  Coast  than  they  did  formerly.  It 
was  said  that  at  least  60  per  cent  of  the  goods  consumed  upon 
the  Pacific  Coast,  which  originate  in  the  east,  came  from  points 

1  P.  44.S,  infra. 


TRANSCONTINENTAL  FREIGHT  RATES  433 

west  of  Bviffalo  and  Pittsburg.  This  gain  of  the  middle  west 
in  Pacific  Coast  bu.siuess  seems  to  be  due  mainly  to  the  increase 
of  manufacturing  in  that  section,  and  in  a  measure  to  the  fact 
that  middle  west  jobbers  and  manufacturers  have  worked  Pacific 
Coast  territory  with  more  vigor  and  persistence  than  their  east- 
ern competitors.  It  will  be  observed,  moreover,  in  the  subse- 
quent statement  of  the  case,  that  freight  rates  from  1894  to  1898 
were  such  as  to  stimulate  business  from  the  middle  west ;  and 
it  should  be  still  further  noted  that  while  the  terminal  rate 
is  blanketed  from  the  Missouri  river,  the  "  intermediate  "  class 
rates  in  all  cases,  and  intermediate  commodity  rates  in  many 
instances,  are  still  graded.  The  first-class  intermediate  rate  to 
California  points  under  the  present  tariff  is :  from  the  Missouri 
river  $3.50,  from  the  Mississippi  83.70,  from  Chicago  -13.90 ; 
while  from  points  east  of  Chicago  the  rate  seems  to  be  made  by 
a  combination  upon  Chicago.  The  effect  of  this  is  to  give  the 
Missouri  river  an  advantage  over  the  Mississippi  and  Chicago 
in  all  territory  covered  by  the  intermediate  rate,  and  to  virtually 
prohibit  business  from  points  east  of  Chicago  in  that  territory. 

The  most  serious  complaint  is  addressed  to  the  alleged  dis- 
crimination against  eastern  jobbers  in  favor  of  Pacific  Coast 
jobbers.  By  eastern  jobbers  are  now  meant  all  those  located 
east  of  the  Missouri  river,  although  it  does  not  appear  that 
any  considerable  business  is  transacted  by  jobbing  houses  east 
of  Chicago.  The  tariff  complained  of  is  that  of  June  25,  1898, 
and  the  above  discrimination  is  alleged  to  be  effected  by  making 
too  wide  a  difference  between  car  loads  and  less  than  car  loads, 
and  by  applying  a  scheme  of  varied  commodity  rates  which 
prevents  the  shipping  of  different  articles  of  a  similar  charac- 
ter in  the  same  package,  and  the  combining  of  similar  articles 
in  car  loads. 

It  is  very  difficult  to  state  in  a  comprehensive  way  the  extent 
of  the  difference  in  rates  applicable  to  car-load  and  less  than  car- 
load shipments.  The  western  classification  places  many  articles 
in  the  4th  class  when  shipped  in  less  than  car  loads,  and  in  the 
5th  class  when  shipped  in  car  loads.  The  difference  between  4th 
and  5th  class  rates  is  30  cents  from  the  Missouri  river  and  25 


.\:]{  HAILWAV    I'KOr.LEMS 

cents  iVtim  tlio  Mississippi  river  ami  points  cast.  It  has  already 
boon  slated  that  the  great  bulk  of  trausconLinental  trallic  moves 
upon  ci)mint)ility  rates.  Au  examination  of  the  west-bound  com- 
modity tariff  shows  that  2211)  articles  so  move,  of  which  922 
have  both  car-load  and  less  than  car-load  rates  ;  885  take  the  same 
rate  both  car-load  and  less  than  car-load,  while  4G2  are  provided 
w  ith  car-load  rates  only.  Of  the  922  articles  taking  both  car-load 
and  less  than  car-load  rates,  the  differential  is  in  very  many  in- 
stances 50  cents  per  100  pounds.  There  are  152  instances  in 
which  that  difference  is  less  and  29  in  wliicli  it  is  greater  than 
50  cents.  In  case  of  the  462  articles  which  take  only  a  car-load 
commodity  rate,  any  less  than  car-load  movement  is  under  the 
class  rate,  and  this  produces  a  differential  which  is  very  much 
greater,  being  in  some  instances  more  than  $3.00,  in  almost  no 
instance  less  than  $1.00  per  100  pounds,  and  making  a  less  than 
car-load  rate,  which  is  in  almost  every  instance  more  than  double 
the  car-load  rate.  It  was  said  by  several  witnesses  for  the  com- 
plainants that  the  differential  would  average  50  cents  per  100 
pounds.  This  was  probably  intended  to  refer  to  the  traffic  in 
which  the  witness  was  interested,  and  it  seems  probable  that,  as 
applied  to  the  transportation  involved  in  this  proceeding,  that 
may  be  a  fair  average.  .  .  . 

It  is  much  more  important  to  understand  the  manner  in  which 
these  diffei'entials  discriminate  against  the  eastern  wholesaler, 
and  the  extent  of  that  discrimination. 

The  great  bulk  of  manufactured  articles  consumed  upon  the 
Pacific  Coast  is  produced  in  the  east.  Whether  these  commodi- 
ties are  wholesaled  by  the  Pacific  Coast  jobber  or  by  the  middle 
west  jobber  the  shipment  is  ordinarily  in  car  loads  from  the 
factory  to  the  warehouse  of  the  jobber  and  in  less  than  car  loads 
from  thence  to  the  retailer.  Of  rail  shipments  from  eastern 
factories  by  Pacific  Coast  jobbers  at  least  90  per  cent  goes  in 
car-load  lots  and  a  considerable  portion  of  the  balance  are  emer- 
gency orders  which  require  quick  delivery.  Upon  the  other 
hand,  testimony  showed  that  the  eastern  jobber  could  distribute 
to  the  retailer  in  car  loads  only  to  a  very  limited  extent.  When 
it  is  remembered  that  the  warehouse  of  the  Pacific  Coast  jobber 


TRANSCONTINENTAL  FREIGHT  RATES  435 

is  located  at  a  terminal  point,  and  that  the  rate  from  the  east 
to  the  intermediate  point  is  made  by  adding  the  local  from  this 
terminal  point  back  to  the  intermediate  point,  it  will  be  seen 
that  the  wholesaler  upon  tlie  Pacific  Coast  has  the  advantage  of 
the  wholesaler  in  the  east  by  the  difference  between  the  car-load 
and  less  than  car-load  rate.  This  advantage  is  important  just 
in  proportion  as  the  value  of  the  goods  per  hundred  pounds, 
or  more  properly  the  margin  of  profit  per  hundred  pounds,  is 
greater  or  less. 

A  concrete  illustration  will  make  this  clear,  and  for  that  pur- 
pose we  may  take  bar  iron.  The  rate  on  this  commodity  from 
the  east  to  Pacific  Coast  terminals  is  C.  L.  75  cents,  L.  C.  L. 
$1.25.  Assume  now  some  intermediate  point  to  which  the  local 
rate  from  the  terminal  is  50  cents  L.  C.  L.  The  Pacific  Coast 
jobber  pays  in  freight  upon  a  hundred  pounds  of  iron  delivered 
to  the  retailer  at  that  point  75  cents  to  his  warehouse  and  50 
cents  local,  in  all,  $1.25  ;  while  his  eastern  competitor  pays  on 
the  L.  C.  L.  shipment  from  his  warehouse  $1.75.  This  gives 
the  Pacific  Coast  jobber  a  clear  advantage  of  50  cents  in  the 
freight  rate  at  all  points  which  base  upon  the  terminal  point. 
The  testimony  of  the  complainants  tended  to  show,  nor  was  it 
denied  by  the  defendants,  that  the  profit  to  the  jobber  in  the 
handling  of  bar  iron  is  less  than  50  cents  per  hundred  pounds. 
Unless,  therefore,  there  be  some  compensating  advantage  to  the 
eastern  jobber  he  is  by  this  differential  prohibited  from  whole- 
saling this  commodity  to  retailers  upon  the  Pacific  Coast  when 
his  shipment  from  the  east  is  in  less  than  car  loads.    *         * 

What  is  true  of  bar  iron  is  also  true  of  most  classes  of  heavy 
hardware,  so  called,  which  include  most  kinds  of  manufactured 
iron  in  its  simpler  forms,  as  sheet  iron,  corrugated  iron,  nails, 
pipe,  horseshoes  and  in  general  any  form  of  hardware  where  the 
cost  of  manufacture  has  not  added  very  materially  to  the  price 
of  the  raw  material.  It  also  appeared  that  the  same  thing  was 
true  of  some  of  the  more  bulky  articles  among  drugs  and  medi- 
cines, paints  and  oils,  stationary  supplies,  wagon  material, 
plumbers'  supplies  and  some  other  lines,  with  respect  to  which 
the  differential  often  exceeded  and  generally  approximated  the 


.\M\  ^;A1I.^VA^"  immhu.ems 

juntit  poi'  Imndri'd  jioinuls  to  the  wlioh'saler.  The  testimony  of 
ii'tailers  npDii  the  Puciiie  Coast  was  to  the  effect  that  after  the 
putting  ill  of  the  tariff  of  June  25,  1898,  they  were  unable  to 
l)iiy  many  of  the  heavier  articles  from  eastern  jobbers.  We 
think  it  appears,  and  we  find,  that  with  respect  to  many  of  the 
more  bulky  articles  above  named  the  differential  is  prohibitive 
against  the  eastern  wholesaler. 

While,  however,  this  is  true  of  many  heavier  articles,  it  is  not 
true  of  the  greater  number  of  commodities  in  which  the  eastern 
wholesaler  deals.  In  case  of  the  higher  priced  commodities  the 
profit  per  hundred  pounds  is  much  greater  than  the  differential. 
When  the  tariff  complained  of  took  effect  the  Simmons  Hard- 
ware Company  determined  to  equalize  the  disadvantage  which 
its  customers  incurred  by  making  a  freight  allowance  of  50  cents 
per  hundred  pounds.  At  first  this  allowance  was  paid  upon 
all  articles,  but  it  soon  became  evident  that  there  were  certain 
articles  which,  including  the  freight  allowance,  were  handled  at 
actual  loss,  and  that  company  very  soon  ceased  to  pay  freight 
allowances  upon  these  commodities.  The  vice  president  testified 
that  these  commodities  were  the  fifteen  following :  Shot,  bar 
lead,  grindstones,  nails,  wire,  rope,  anvils,  sheet  zinc,  sheet  steel, 
horseshoes,  sheet  iron,  staples,  wire  staples,  small  chains.  Except 
so  far  as  these  articles  can  be  shipped  in  car  loads,  either  straight 
or  combined,  they  cannot  be  wholesaled  from  the  east  upon  the 
Pacific  Coast.  It  was  claimed  that  these  heavier  articles  were 
usually  staple  commodities,  and  that  the  inability  to  handle 
them  was  a  serious  handicap  upon  the  eastern  jobber,  since  the 
retailer  preferred  to  patronize  that  concern  which  could  supply 
all  his  wants.          ******* 

The  jo]>bing  business  of  the  Pacific  Coast  is  transacted  under 
peculiar  etjnditions.  As  already  said,  the  supplies  of  the  jobber 
are  almost  entirely  drawn  from  the  east  and  middle  west.  Job- 
bing houses  are  situated  mainly  upon  the  coast,  and  these  sup- 
plies are  therefore  taken  to  the  coast  and  from  thence  sent  back 
into  the  interior.  r)\ving  to  the  method  by  which  rates  are 
made,  it  necessarily  follows  that  the  territory  to  which  the  coast 
jobber  can  distribute  is   limited.     It  has  been  seen  that  the 


TEANSCONTINENTAL  FEEIGHT  RATES  437 

"  intermediate  "  rate  limits  the  territory  within  which  the  rate  to 
intermediate  points  is  made  by  building  up  upon  the  terminal 
rate,  and  it  is  evident  that  as  soon  as  this  limit  is  passed  going 
towards  the  east  the  Pacific  Coast  jobber  is  at  a  disadvantage  in 
the  freight  rate.  This  limit  is  not  the  same  with  respect  to  all 
commodities.  In  case  of  sheet  zinc,  as  we  have  already  seen,  it 
is  but  155  miles,  while  in  some  few  instances  the  combination 
extends  back  from  the  coast  a  thousand  miles,  possibly  farther. 
Nor  does  the  line  of  demarcation  so  fixed  exactly  correspond 
with  the  actual  business  limit,  since  the  jobber  can  only  operate 
in  territory  accessible  to  most  of  the  articles  in  which  he  deals. 
The  distance  towards  the  east  which  is  open  to  the  jobber  upon 
the  Pacific  Coast  varies  somewhat  in  different  lines  of  merchan- 
dise, but  generally  speaking  it  is  about  the  115th  meridian, 
some  three  or  four  hundred  miles  from  the  coast.  It  was 
claimed  by  the  defendants,  and  not  seriously  denied  by  the 
complainants,  that  east  of  this  line  the  territory  was  exclusively 
occupied  by  the  eastern  wholesaler,  except  in  case  of  some  few 
articles  originating  upon  the  Pacific  Coast. 

This  scheme  of  rate  making  also  limits  the  territory  of  the 
individual  jobber  upon  the  Pacific  Coast  north  and  south  as 
well  as  east.  Rates  from  eastern  originating  points  are  the 
same  to  all  terminals.  Rates  to  interior  points  are  made  by 
adding  the  local  rate  to  the  nearest  terminal.  It  follows  there- 
fore that  the  jobber  located  at  some  terminal  point  like  San 
Francisco,  as  he  goes  north  or  south,  very  soon  enters  the 
territory  of  some  other  terminal  point,  like  Portland  or  Los 
Angeles,  in  which  his  local  rate  is  greater  than  that  of  his 
competitor  located  at  such  terminal.  The  effect  is  to  draw  a 
series  of  circles  with  each  terminal  point  as  a  center  within 
the  circumference  of  which  tlie  jobber  located  at  the  terminal 
point  has  the  advantage  of  all  others. 

Not  only  does  this  confine  the  territory  within  which  a  par- 
ticular Pacific  Coast  jobber  can  compete  upon  even  terms  with 
some  other  Pacific  Coast  jobber,  but  it  also  limits  the  territory 
north  and  south  within  which  the  Pacific  Coast  jobber  has  the 
advantage  of  his  eastern  competitor.    Less  than  car-load  rates 


4;)8  i:ail\\a\    tkoblems 

t'loin  the  east  are  the  same  to  interior  points  no  matter  upon 
what  terminal  a  particuhir  point  may  base,  and  it  soon  happens, 
therefore,  that  the  less  than  car-load  rate  to  such  point  is  lower 
than  the  rate  arrived  at  by  combining  the  car-load  rate  to  the 
terminal  point  and  the  local  rate  from  that  point.  Take  San 
Francisco  as  an  example.  Nominally,  rates  to  San  Francisco 
are  the  same  as  to  other  Pacific  Coast  terminals.  Owing  to  its 
superior  shipping  facilities  as  a  seaport  it  probably  enjoys  some 
actual  advantage  in  the  matter  of  the  rate.  When,  however,  the 
jobber  attempts  to  distribute  from  San  Francisco,  he  finds  all 
around  him  terminal  points  through  which  he  must  operate, 
Marysville  distant  upon  the  north  142  miles,  Sacramento  upon 
the  east  90  miles,  Stockton  to  the  southeast  103  miles  and  San 
Jose  to  the  south  50  miles.  Now,  the  rate  to  almost  any  inte- 
rior point  outside  this  cordon  of  terminals  is  made  by  adding 
the  local  from  these  points,  while  the  San  Francisco  jobber  must 
pay  the  local  from  San  Francisco  itself.  This  operates  to  mate- 
rially decrease  the  advantage  which  the  San  Francisco  whole- 
saler would  otherwise  possess.  But  still  further,  if  he  attem})ts 
to  go  farther  north  he  very  soon  reaches  territory  where  tho 
rate  bases  upon  Portland  and  where  his  combined  car-load  and 
less  than  ear-load  is  higher  than  the  less  than  car-load  rate  from 
St.  Louis.  So  if  he  attempts  to  proceed  south  he  speedily  comes 
to  a  point  where  the  rate  bases  upon  Los  Angeles  and  where  the 
combined  rate  is  in  favor  of  the  middle  west  jobber.  Canned 
goods  were  frequently  referred  to  in  the  testimony.  Taking 
this  commodity  as  an  illustration,  we  find  that  the  car-load  rate 
to  San  Francisco  plus  the  local  rate  to  Ashland,  Ore.,  a  distance 
of  431  miles,  is  '1^2.08,  while  the  direct  L.  C.  L.  rate  from  the 
Missouri  river,  basing  on  Portland,  is  |!2.00.  At  Mojave,  Cali- 
fornia, 382  miles  southeast,  the  combined  car-load  and  less  than 
car-load  rate  of  the  .San  Francisco  jobber  is  $1.81,  as  against  a 
direct  L.  C.  L.  rate  fi'om  the  Missouri  river  of  -11.99. 

These  illustrations  serve  to  show  how,  while  this  scheme  of  rate 
making  favors  the  Pacific  Coast  jobber  as  a  class,  it  limits  the 
territory  of  the  individual  Pacific  Coast  jobber  both  as  against 
his  competitor  upon  the  coast  and  as  against  his  competitor 


TRANSCO^'TIXENTAL  FREIGHT   EATES  430 

in  the  east.  While  it  appears  that  San  Francisco  jobbers  do 
business  over  the  whole  Pacific  Coast,  it  is  done  at  a  serious 
disadvantage  beyond  the  limits  of  a  comparatively  narrow 
sphere  ;  indeed,  one  witness  in  behalf  of  the  complainants  ex- 
pressed the  opinion  that  the  territory  of  the  wholesaler  upon 
the  coast  was  so  narrow  that  there  was  really  no  excuse  for 
his  existence. 

The  territory  of  jobbers  east  of  the  Missouri  is  of  course 
limited  against  one  another.  It  is  not  material  here  to  discuss 
the  extent  of  that  limitation,  since  we  aie  considering  the  com- 
petition between  eastern  jobbers  as  a  whole  and  those  upon  the 
Pacific  Coast.  The  fact  that  the  rate  from  the  warehouse  of 
every  wholesaler  in  the  middle  west  to  the  store  of  each  retailer 
upon  the  coast  is  the  same,  gives  him  an  advantage  over  the 
individual  Pacific  Coast  jobber  outside  the  immediate  "•  sphere  " 
of  the  latter,  which  in  a  measure  offsets  the  decided  advantage 
of  the  Pacific  Coast  jobber  within  that  sphere. 

The  effect  of  thus  circumscribing  the  territory  of  the  Pacific 
Coast  jobber  is  to  render  the  volume  of  his  business  compara- 
tively small.  That  of  all  the  houses  with  which  he  competes 
in  the  east  is  much  more  extensive.  The  two  concerns  most 
prominent  in  the  prosecution  of  this  proceeding  were  the  Sim- 
mons Hardware  Company  of  St.  Louis  and  Hibbard,  Spencer, 
Bartlett  &  Co.  of  Chicago ;  of  which  the  former  does  business 
in  all  portions  of  the  United  States  except  New  England,  while 
the  representative  of  the  latter  testified  that  the  operation  of  his 
house  was  only  limited  by  the  confines  of  the  earth.  Jobbers 
upon  the  Pacific  Coast  earnestly  insisted  that  these  great  estab- 
lishments were  not  dependent  upon  that  territory  for  any  con- 
siderable part  of  their  business,  and  that  they  used  it  as  surplus 
territory  in  which  they  could  afford  to  operate  at  a  very  small 
margin  of  profit.  It  also  appeared  that  owing  to  the  distance  at 
which  these  houses  upon  the  Pacific  Coast  were  located  from 
their  base  of  supply,  the  amount  of  stock  carried  was  very 
large  in  proportion  to  the  volume  of  business  done  ;  and  that 
the  expense  of  transacting  that  business  was  greater  than  in 
the  east. 


440  ijAii.wAv  rnor.LKMs 

Certain  articles  are  produced  upon  the  Pacific  Coast,  and  cer- 
tain others  are  imported  from  Europe  and  from  eastern  Asia, 
while  still  others  manufactured  in  the  eastern  portion  of  the 
I'nited  States  are  sold  at  a  delivered  price.  With  respect  to  all 
these  the  Pacific  Coast  jobber  has  the  advantage  of  his  eastern 
rival.  But  it  did  not  at  all  definitely  appear  what  the  extent  of 
that  advantage  might  be.  We  are  inclined  to  think  that  if  the 
Pacific  Coast  jobber  had  no  advantage  in  the  freight  rate  at 
which  he  could  bring  his  merchandise  from  points  of  produc- 
tion and  distribute  it  to  points  of  consumption,  he  would  find 
it  extremely  ditlicult  to  hold  his  own. 

The  principal  contention  of  the  Pacific  Coast  jobbers  is  that 
their  location  entitles  them  to  such  an  advantage.  The  con- 
trolling factor  in  that  location  is  the  possibility  of  bringing  in 
goods  from  the  Atlantic  seaboard  and  foreign  countries  by  water. 
The  effect  of  water  competition  is  also  the  defense  largely 
relied  upon  by  the  carriers  in  justification  of  their  tariffs,  and 
the  facts  in  reference  to  it  as  applicable  to  each  may  be  stated 
together. 

Several  of  the  jobbing  houses  whose  representatives  testified 
in  this  proceeding  were  established  at  Sacramento  and  San 
Francisco  a  half  century  ago.  At  that  time  the  only  means 
available  for  the  transportation  of  merchandise  from  the  Atlan- 
tic seaboard  to  tlieir  warehouses  was  by  sailing  vessel  around 
Cape  Horn,  or  through  the  Straits  of  Magellan.  In  1854  the 
Panama  railroad  was  constructed.  By  this  route  freight  passes 
from  New  York  to  Colon  by  ship,  from  Colon  to  Panama,  a 
distance  of  fifty  miles,  by  rail,  and  from  Panama  to  San  Fran- 
cisco by  water.  Upon  this  route  steamers  have  been  used  in- 
stead of  sailing  vessels,  the  distance  is  much  shorter,  the  time 
much  quicker,  the  certainty  of  arrival  much  greater,  and  gen- 
erally the  advantages  offered  are  much  superior  to  those  by 
sail  around  South  America.  It  has  from  the  first  transacted 
a  considerable  amount  of  business  between  the  two  coasts. 

The  fii'st  transcontinental  line  of  railroad  was  the  Central 
Pacific  in  connection  with  the  I^nion  Pacific,  and  was  opened 
for  business  in  1869.    This  line  at  once  began  to  comj^ete  for 


TRANSCONTINENTAL   FREIGHT   RATES  441 

transcontinental  freight,  with  no  great  amount  of  success  at 
first.  It  succeeded  in  carrying  a  portion  of  the  higlier  class 
merchandise,  but  the  great  bulk  of  all  commodities  continued 
to  move  by  water  or  by  the  Panama  route.  It  was  estimated 
that  as  late  as  1878  not  over  25  per  cent  of  the  total  tonnage 
moved  into  California  by  rail.  In  that  year,  for  the  purpose 
of  obtaining  a  larger  share  of  this  traffic,  the  rail  line  inaugu- 
rated what  was  known  as  the  special  contract  system  involving 
a  contract  between  the  railway  and  each  individual  shipper,  by 
which  the  merchant  agreed  to  patronize  the  railway  exclusively, 
in  consideration  whereof  the  railway  made  certain  special  rates 
of  freight.  .  .  .  This  system  was  not  popular  at  the  outset,  but 
before  long  every  important  jobbing  house  in  San  Francisco, 
with  one  exception,  had  made  a  contract  of  this  kind.  The 
effect  was  to  very  much  increase  the  rail  tonnage.  It  seems 
probable  .  .  .  that  in  1884  when  this  plan  finally  went  out  of 
vogue,  the  percentage  of  rail  tonnage  had  risen  from  25  per  cent 
to  between  60  and  75  per  cent. 

In  1881  the  Atchison,  Topeka  &  Santa  Fe  Railway  was  built 
to  a  connection  with  the  Southern  Pacific  at  Deming,  and  in 
1882  the  Texas  &  Pacific  connected  with  the  same  line  at  El 
Paso.  In  1883  the  Southern  Pacific  route  from  New  Orleans 
was  opened,  and  the  same  year  saw  the  completion  of  the  Rio 
Grande  Western  and  the  extension  of  the  Santa  Fe  to  Mojave. 
In  the  northwest  the  Northern  Pacific  was  opened  for  traffic 
that  year,  and  the  completion  of  the  Oregon  Short  Line  the 
following  year  gave  the  Union  Pacific  an  entrance  into  Port- 
land. The  multiplication  of  these  transcontinental  routes  pro- 
duced a  corresponding  diversity  of  interest,  .  .  .  the  contract 
system  was  abandoned  because  the  various  lines  could  not  agree 
among  themselves  upon  the  division  of  business  and  the  main- 
tenance of  rates.  To  obviate  this  embarrassment  the  Transcon- 
tinental Association  was  organized,  having  for  its  purpose  a 
pooling  distribution  of  transcontinental  trafiic,  or  earnings,  and 
the  fixing  and  maintaining  of  transcontinental  tariffs.     *        * 

When  the  Central  Pacific  and  Union  Pacific  began  business 
as  the   first   transcontinental   railway   line   they  found   in    the 


4fi  KAILWAV   PKOr.J.EMS 

Panama  route  their  most  troublesome  eompetitor.  For  the  pur- 
pose of  controlling  this  competition  tliese  two  lines  and  their  con- 
nections in  1871  entered  into  a  contract  with  the  Pacific  Mail 
Steamship  Company,  which  then  did  the  ocean  carrying  by  the 
Panama  route  both  from  New  York  to  Colon  and  from  Panama 
to  San  Francisco,  by  which  the  railways  leased  and  paid  for  the 
entire  space  in  the  steamships  of  the  Pacific  Mail  Company 
which  was  devoted  to  California  business.  Under  this  contract 
the  steamship  company  disposed  of  this  space  according  to  the 
direction  of  the  railways,  naming  such  rates,  making  such  reg- 
ulations and  generally  so  conducting  with  respect  to  traffic  as 
they  directed.  The  policy  of  the  railways  was  to  offset  the  Pan- 
ama route  against  the  clipper  ships.  This  contract  was  taken 
over  by  the  Transcontinental  Association  when  it  was  formed, 
and  it  continued  in  effect  with  some  slight  interruptions  from 
1871  until  December  31,  1892.  .  .  . 

Previous  to  this  time  there  had  been  in  force  a  contract  be- 
tween the  Pacific  Mail  Steamship  Company  and  the  Panama  Rail- 
road Company  under  which  the  steamship  company  acquired  the 
exclusive  use  of  the  Panama  railway  for  business  moving  between 
the  Atlantic  and  Pacific  Coasts.  That  contract  expired  about 
this  same  time,  and  the  Pacific  Mail  declined  to  renew  it  upon 
the  original  terms  in  view  of  the  expiration  of  its  own  contract 
with  the  transcontinental  railways.  In  consequence  the  Panama 
Railroad  Company  put  on  a  line  of  steamers  of  its  own  between 
New  York  and  Colon  known  as  the  Columbia  Steamship  Com- 
pany. Meantime  the  merchants  of  San  Francisco  had  become  dis- 
satisfied with  the  treatment  which  they  were  receiving  from  the 
railways.  Tiiey  knew  of  the  existence  of  contracts  between 
the  transcontinental  lines  and  the  Panama  route,  and  regarded 
the  whole  arrangement  in  the  light  of  a  monopoly  which  extorted 
unreasonable  rates  and  imposed  unreasonable  conditions.  Learn- 
ing that  the  contract  between  the  Panama  Railroad  and  the  Pacific 
Mail  was  about  to  expire  they  proposed  to  put  on  a  line  of  steam- 
ships between  San  Francisco  and  Panama,  thus  making,  in  con- 
nection with  the  Panama  Railroad  and  its  own  steamships,  an 
independent  line   from   New  York  to   San   Francisco.    In  the 


TRANSCONTINENTAL  FREIGHT  RATES  443 

execution  of  this  plan  the  North  American  Navigation  Company 
was  organized  by  the  merchants  of  San  Francisco. 

This  route  began  operations  in  the  year  1893,  and  attempted 
from  the  first  to  maintain  a  differential  upon  traffic  moving  be- 
tween the  Atlantic  and  Pacific  Coasts  which  would  deprive  the 
railroads  of  a  considerable  share  of  the  business  previously  han- 
dled by  them.  The  result  was  a  most  bitter  and  reckless  rate 
war  during  which  there  was  an  utter  demoralization  of  rates  and 
rate  conditions.  The  San  Francisco  jobbers  were  upon  the  side 
of  the  ocean,  and  not  only  were  rates  abnormally  reduced,  but 
differentials  were  abolished,  the  right  to  ship  in  mixed  car  loads 
was  extended,  every  inducement  was  held  out  to  the  jobber  of 
the  middle  west  to  invade  the  territory  of  the  Pacific  Coast. 
The  North  American  Navigation  Company  only  operated  about 
one  year,  but  its  vessels  were  taken  over  by  the  Panama  Com- 
pany and  the  competition  itself  continued  in  full  force  until  the 
end  of  the  year  1895. 

This  episode  had  been  an  expensive  one  for  all  parties  con- 
cerned. It  is  in  testimony  that  the  merchants  had  put  into  the 
North  American  Navigation  Company  $350,000,  which  was 
entirely  lost ;  and  their  indirect  loss  must  have  been  greater 
still.  They  had  seen  their  territory  diminish,  their  profits  grow 
less,  their  business  decrease  under  the  competition  which  had 
been  fostered  by  rail  rates  from  the  east.  The  situation  was  not 
more  satisfactory  to  the  railways  for  they  had  sacrificed  millions 
of  dollars  in  revenue  and  were  still  receiving  what  they  regarded 
as  abnormally  low  rates.  Both  parties  were  therefore  anxious  for 
some  sort  of  an  accommodation.  Representatives  of  the  trans- 
continental lines  upon  the  coast  were  instructed  to  mollify  as 
far  as  possible  Pacific  Coast  shippers  and  the  shippers  in  their 
turn  seem  to  have  been  anxious  to  meet  this  advance.  In  1897 
a  communication  was  addressed  to  the  railways  by  the  jobbing 
interests  upon  the  Pacific  Coast  stating  in  substance  that  rates 
ought  to  be  readjusted  in  the  interest  of  the  coast  jobber ;  that 
more  rigid  inspection  rules  should  be  enforced  preventing  their 
competitors  in  the  middle  west  from  obtaining  fraudulent  rates ; 
and  intimating  that  if  this  was  done  they  would  not  object  to 


■Ill  1^\1T.^VA^    I'l^or.r.EMS 

ail  advance  in  rates  and  would  liiul  it  Tor  their  interest  largely 
to  place  shipments  witii  railroads.  .  .  .  The  result  of  this  con- 
ference was  the  tariff  of  June  25,  1898,  which  is  attacked  in 
this  proceeding. 

The  jobbers  of  the  middle  west  vehemently  insisted  that  in 
this  tariff  they  had  not  received  proper  consideration,  and  a  sub- 
sequent meeting  was  held  at  St.  Paul  in  May,  1899,  at  which 
the  matter  was  again  gone  into  by  the  parties  in  interest,  with 
the  result  that  the  Great  Northern  and  the  Northern  Pacific 
companies  modified  in  certain  essential  respects  the  tariff  of  the 
previous  June  by  a  supplement  taking  effect  May  1,  1899,  and 
known  in  this  case  as  the  St.  Paul  Supplement.  This  supple- 
ment reduced  in  some  instances  the  differentials  between  car 
loads  and  less  than  car  loads,  and  modified  the  varied  commodity 
rates  in  the  hardware  schedule,  and  perhaps  in  some  others. 

The  complainants  insist  that  the  tariff  of  June  25,  1898,  was 
the  result  of  an  agreement  between  the  railways  and  the  jobbers 
of  the  Pacific  Coast  that  tariffs  should  be  adjusted  in  their  favor, 
and  that  they  in  consideration  would  patronize  the  rail  instead 
of  the  water ;  and  that  the  effect  of  that  agreement  has  been  to 
largely  destroy  effective  competition  by  water. 

From  1871  until  January  1,  1893,  the  Panama  route  was 
absolutely  controlled  with  respect  to  Pacific  Coast  business  in 
the  United  States  by  transcontinental  lines,  and  there  was  dur- 
ing that  period  no  competition  with  that  line.  For  some  years 
afterwards  that  competition  was  extremely  active.  It  appears 
that  finall}'  the  Pacific  Mail  became  the  steamer  part  of  the  line 
from  Panama  to  San  Francisco,  while  the  Columbia  Steamship 
Company  continued  to  form  the  link  between  New  York  and 
Colon.  To-day  the  agent  of  the  Panama  Company  in  New  York 
makes  the  west-bound  rates  while  the  agent  of  the  Pacific  Mail 
at  San  Francisco  controls  the  east-bound  shipments.  The  tariffs 
west-bound  are  based  upon  the  corresponding  tariffs  of  the  rail 
lines,  being  20  per  cent  less  on  car  loads  and  30  per  cent  less  on 
less  than  car  loads.  This  apparently  gives  that  route  substan- 
tially the  full  capacity  of  its  steamers  in  traffic.  .  .  .  While  the 
testimony  in  this  case  fails  to  show  any  contract  or  understanding 


TRANSCONTINENTAL   FREIGHT   RATES  445 

through  which  competition  by  the  Panama  route  is  limited  it 
can  hardly  be  said  that  at  the  present  time  that  line  affords 
much  actual  competition  between  the  coasts. 

With  resjDCct  to  competition  by  the  all  ocean  route  the  matter 
has  all  along  stood  entirely  otherwise.  At  first  this  was  the  only 
means  of  transportation  for  merchandise.  As  late  as  1878  prob- 
ably 75  per  cent  of  the  entire  tonnage  came  in  by  sail.  In  1884 
this  percentage  had  very  much  fallen,  but  still  equaled  25  per 
cent.  Since  then  there  has  been  a  further  decline,  the  testimony 
showing  that  for  the  last  ten  years  not  more  than  10  to  15  per 
cent  has  arrived  in  this  way.  But  there  is  nothing  in  the  case 
to  show  that  any  agreement  has  ever  subsisted  between  rail  lines 
and  the  route  around  South  America  as  to  any  division  of  traffic, 
or  any  establishment  of  rates. 

The  principal  witness  as  to  the  present  state  of  water  com- 
petition by  all  ocean  routes  was  Mr.  Jackson,  representative  of 
Flint,  Dearborn  &  Co.,  of  New  York,  managers  of  the  principal 
line  of  clipper  ships  between  the  Atlantic  and  Pacific  Coasts.  .  .  . 
From  his  testimony  it  appeared  that  duiing  the  year  1898  there 
were  shipped  from  New  York  to  California,  mainly  San  Francisco, 
by  sailing  vessels  about  34,000  tons,  and  from  Philadelphia  about 
6000  tons.  Substantially  the  same  tonnage  had  been  forwarded 
the  previous  year,  1897.  It  also  appeared  that  some  other  vessels 
were  engaged  in  the  same  business  between  Philadelphia  and 
San  Francisco,  and  perhaps  between  New  York  and  Pacific  Coast 
points.  Formerly  the  tonnage  carried  by  these  lines  had  been 
much  greater  than  it  was  in  those  years.  For  some  years  pre- 
vious to  1890  it  had  varied  from  50,000  to  100,000  tons  per 
annum.  The  rate  war  which  broke  out  in  1894  diverted  the  ton- 
nage from  sail  to  rail,  and  the  effect  of  this  was  continued  after 
the  close  of  those  rate  disturbances  by  the  Spanish  war,  which 
rendered  rates  of  insurance  high  and  ships  scarce.  The  outlook 
for  the  future  was,  however,  said  to  be  more  promising. 

Mr.  Jackson  .  .  .  was  also  the  treasurer  of  the  American- 
Hawaiian  Steamship  Company,  a  corporation  organized  for  the 
purpose  of  owning  and  operating  a  line  of  steamers  between  New 
York,  San  Francisco  and  Hawaii  via  the  Straits  of  Magellan.    He 


-\.\(]  U\\\A\\\     I'Kol'.LKMS 

lirsl  lostified  in  Novemher,  lSJtl»,  and  at  that  time  this  company 
had  phiced  orders  for  tour  steamers  of  8500  tons  each  to  be  used 
in  this  service.  It  was  said  that  these  steamships  would  carry, 
beside  the  necessary  coal,  7500  tons  of  freight,  and  would  make 
tlie  run  from  New  York  to  !San  Francisco  in  about  60  days.  It 
was  expected  that  each  steamer  would  make  two  trips  per  year, 
thus  ai1:"ording  a  capacity  of  60,000  tons  west-bound  which  it 
was  believed  could  easily  be  obtained. 

Subsequently,  in  December,  1900,  Mr.  Jackson  again  testified, 
and  then  stated  that  two  of  the  steamers  above  referred  to  had 
already  been  delivered  and  put  into  service  ;  that  the  two  others 
referred  to  in  his  former  testimony  would  soon  be  ready  for 
delivery,  and  that  his  company  had  within  the  year  contracted 
for  three  larger  steamers  for  this  same  service  with  a  capacity  of 
15,000  tons  each.  He  stated  that  this  would  give  a  total  carry- 
ing capacity  west-bound  of  about  126,000  tons  per  annum.  .  .  . 

Almost  every  article  which  moves  from  the  east  to  the  Pacific 
Coast  has  been  at  times  actually  carried  by  ocean.  A  list  of  the 
articles  transported  during  the  year  1898  was  introduced  and 
it  embraced  nearly  every  article  of  merchandise.  The  territory 
from  which  this  route  draws  its  freight  is  mostly  that  in  the 
immediate  vicinity  of  New  York.  Shipments  have  been  taken 
from  as  far  west  as  Chicago,  and  even  St.  Louis,  but  this  is  of 
rare  occurrence.  The  great  bulk  of  its  traffic  is  from  points  east 
of  Buffalo  and  Pittsburg. 

In  the  making  of  rates  by  ocean  no  distinction  as  such  is  ob- 
served between  car-load  and  less  than  car-load  lots.  Mr.  Jack- 
son testified  that  about  three  fourths  of  the  tonnage  forwarded 
by  him  was  in  lots  exceeding  30,000  pounds  and  one  fourth  in 
lots  less  than  that  figure  ;  the  range  of  the  smaller  lots  being  from 
1000  to  20,000  pounds.  While  there  is  no  less  than  car-load 
rate  as  such  the  amount  charged  per  hundred  pounds  for  smaller 
quantities  is  greater  than  that  charged  for  larger  quantities, 
the  difference  being  from  10  to  30  cents  per  hundred  pounds. 
Everything  depends,  however,  upon  the  quantity  offered  for  ship- 
ment and  the  state  of  the  ship's  contracts  for  the  freight.  Large 
quantities  are  often  taken  at  very  low  figures.    We  are  inclined 


TKANSGONTINENTAL   FREIGHT   RATES 


447 


to  think  that  the  ordinary  difference  made  by  water  between 
car  loads  and  less  than  car  loads,  while  not  a  fixed  sum,  is  con- 
siderably less  than  the  difference  prescribed  by  the  tariff  of 
June  25,  1898,  upon  rail  shipments. 

The  witness  objected  to  stating  the  exact  rates  at  which  mer- 
chandise had  been  carried  by  his  line,  but  did  give  some  illustra- 
tive examples ;  among  others  the  following,  in  connection  with 
which  the  rail  rate  is  also  given : 


Water  Rate 

Rail  Rate 

L.  0.  L. 

C.L. 

Bar  iron 

Grindstones 

Soil  pipe 

Radiators 

Hardwood  lumber      .     . 

30  to  35/ 

35  to  40/ 
40  to  45/ 
40  to  42/ 

$1.25 
1.90 
1.90 
2.20 
1.25 

$  .75 

.75 

.75 

1.30 

.75 

It  must  be  remembered  that  a  water  rate  of  a  certain  number 
of  cents  per  hundred  pounds  is  by  no  means  equivalent  in  value 
to  the  shipper  to  a  rail  rate  of  the  same  amount.  Several  things 
must  be  taken  into  account  in  determining  the  relative  desira- 
bility of  the  two  rates.  The  item  of  marine  insurance  is  im- 
portant, and  Mr.  Jackson  stated  that  this  was  by  his  sailing 
vessels  about  1 J  per  cent  of  the  value  of  the  commodity  ;  the 
time  occupied  in  transit  and  the  consequent  loss  upon  the  invest- 
ment is  an  item  of  consequence,  the  ordinary  run  from  San  Fran- 
ciseo  being  in  the  vicinity  of  135  days.  In  addition  to  this  is  the 
liability  to  damage  by  salt  water  in  case  of  many  articles  as  well 
as  the  delay  and  uncertainty  incident  upon  that  means  of  trans- 
I)ortation.  No  witness  was  prepared  to  state  what  rate  by  ocean 
was  equivalent  to  a  rate  of  %\  by  rail ;  indeed  the  witnesses 
seemed  to  agree  that  it  would  be  impossible  to  answer  that  ques- 
tion definitely  since  its  answer  must  depend  upon  the  commodity 
transported.  One  witness  said  that  after  everything  had  been 
taken  into  account  he  would  still  pay  the  railways  on  most  com- 
modities a  rate  5  per  cent  higher  than  that  by  water. 


-MS  KAILWAV    I'KOr.l.KMS 

A  portion  of  the  (lisiulvuntages  atteiuling-  transportation  by 
water  will  be  largely  obviated  throngh  the  use  of  steamers  in 
place  of  sailing  vessels.  As  just  stated  the  ordinary  time  by 
sail  from  New  York  to  San  Francisco  is  estimated  at  135  days, 
but  the  time  actually  consumed  often  greatly  exceeds  this,  some- 
times being  as  much  as  a  whole  year.  This  uncertainty  as  to 
date  of  arrival  has  been  a  serious  objection  to  that  method  of 
carriage.  The  steamer  is  expected  to  make  the  run  around 
South  America  in  60  days,  and  its  arrival  can  probably  be 
counted  upon  with  more  exactness  than  arrivals  by  rail.  The 
item  of  insurance  will  also  be  much  less  with  steamers  than 
with  sailing  vessels  as  will  the  loss  on  the  investment  during  the 
period  of  transit.  It  was  said  that  with  a  canal  across  the 
Isthmus  of  Panama  the  trip  from  New  York  by  the  steamers  now 
ordered  could  be  made  in  about  20  days,  and  that  doubtless  if 
such  a  canal  were  constructed  faster  steamers  would  be  put  on 
which  would  make  the  trip  in  from  15  to  16  days.      *  * 

The  carrier  must  meet  this  water  competition  mainly  with 
the  car-load  rate.  Ninety  per  cent  of  the  merchandise  brought 
from  the  east  to  the  Pacific  Coast  by  Pacific  Coast  jobbers  comes 
in  car-load  lots.  The  less  than  car-load  shipments  are  often  in 
the  nature  of  emergency  orders  requiring  quick  delivery  and  not 
therefore  susceptible  of  ocean  carriage.  *  *  * 

Conclusions 

The  complaint  in  this  case  attacks  the  system  of  rate  making 
in  vogue  upon  the  Pacific  Coast.  What  that  system  is  appears 
in  the  findings  of  fact,  and  is  well  understood  by  all  persons 
having  an  elementary  knowledge  of  the  situation.  The  rate 
from  an  eastern  point  like  St.  Louis  is  lowest  to  the  so-called 
"  terminal  "  upon  the  coast.  Going  east  from  the  terminal  point 
the  rate  increases  until  limited  by  the  so-called  "  intermediate  " 
rate.  This  produces  a  higher  rate  at  the  intermediate  point 
through  which  the  traffic  passes  to  the  terminal  point  and  com- 
pels the  St.  Louis  merchant,  although  nearer  in  distance,  to  pay 
more  for  the  transportation  of  his  merchandise.    He  insists  that 


TRANSCONTINENTAL  FREIGHT  RATES  449 

his  rate  to  the  nearer  station  ought  to  be  no  higher  than  to  the 
more  distant  point.        ****** 

The  coniphxint  also  attacks  the  scheme  of  transcontinental  rate 
making  in  force  east  of  the  Missouri  river  as  applied  to  west- 
bound rates.  That  system  differs  radically  from  the  method 
followed  upon  the  Pacific  Coast.  While  upon  the  Pacific  Coast 
the  rate  is  lowest  to  the  terminal  at  the  ocean  and  increases 
toward  the  interior,  in  the  east  the  rate  from  the  seaboard  does 
not  increase  as  we  proceed  inland,  but  remains  the  same. 
This  produces  what  is  known  as  the  blanket  system  of  rates. 
The  first-class  rate  from  New  York  to  San  Francisco  is  $3  and  the 
same  rate  applies  from  St.  Louis.  Commodity  rates  follow  the 
same  rule  so  that  generally  speaking  rates  both  class  and  com- 
modity to  Pacific  Coast  terminals  and  points  basing  upon  such 
terminals  are  the  same  from  all  points  east  of  the  Missouri  river. 
This  St.  Louis  declares  to  be  unjust ;  being  one  thousand  miles 
nearer  San  Francisco  than  New  York  it  insists  that  it  should  be 
given  the  benefit  of  that  advantage  in  distance. 

The  higher  rate  to  the  interior  point  in  California  is  justi- 
fied by  the  carriers  upon  the  ground  of  water  competition,  the 
theory  being  this  :  Water  competition  between  New  York  and 
San  Francisco  establishes  a  cheaper  rate  than  could  reasonably 
be  exacted  from  the  rail  carrier.  Merchandise  at  New  York  can 
be  taken  by  water  to  San  Francisco  at  the  low  water  rate  and 
thence  carried  by  rail  to  an  interior  point  for  the  water  rate 
from  New  York  to  San  Francisco  plus  the  local  rate  from  San 
Francisco  to  the  interior  point.  If  the  rail  carrier  engages  in 
this  business  it  must  meet  the  rate  thus  established  by  water  at 
San  Francisco,  and  by  water  and  rail  at  the  interior  point.  It 
is  claimed  that  the  carrier  may  at  his  election  meet  this  compe- 
tition and  make  its  rates  accordingly.  It  may  therefore  charge 
to  the  interior  point  a  rate  higher  than  the  terminal  rate  by  the 
local  back,  until  a  point  is  reached  at  which  the  rate  so  formed 
is  more  than  a  reasonable  rate.  This  right  upon  the  part  of 
the  carrier  may  perhaps  be  subject  to  certain  qualifications 
and  limitations,  but  generally  speaking  this  is  the  theory 
upon  which  certain  rates  upon  the  Pacific  Coast,  which  have 


4.")0  i;ail\\  a\    iMior.LKMS 

been  declared  not  in  viohitiun  ol  the  Act  to  Regulate  Commerce, 
are  constructed. 

Now  in  theory  the  converse  of  this  proposition  would  be  true 
when  applied  to  the  point  of  oiigin  in  the  east.  Water  transpor- 
tation tixes  tlie  rate  from  New  York  to  San  Francisco.  Pitts- 
burg is  four  Imndred  miles  west  of  New  York.  A  commodity 
can  move  from  Pittsburg  to  San  Francisco  in  two  ways;  it  may 
go  directly  by  rail,  or  it  may  go  by  rail  from  Pittsburg  to  New 
York  and  from  thence  to  San  Francisco  by  ship.  If  it  goes  by 
rail  and  ocean  manifestly  the  rate  should  be  higher  from  Pitts- 
burg than  from  New  York,  although  Pittsburg  is  nearer  San 
Francisco,  since  carriage  by  that  route  involves  the  rail  haul 
from  Pittsburg  to  New  York.  Applying  this  principle  of  water 
competition  in  the  east  exactly  as  it  has  been  applied  upon  the 
Pacific  Coast,  rates  to  terminal  points  from  the  east  would  be 
lowest  from  the  Atlantic  seaboard  and  would  gradually  increase 
toward  the  interior  until  some  point  was  reached  at  which  the  rate 
so  constructed  equaled  a  reasonable  rate  b}^  the  direct  rail  route. 
If  that  theory  of  rate  making  which  has  been  sanctioned  by  the 
Courts  and  by  the  Commission  in  some  cases  were  applied  to 
this  territory  east  of  the  Missouri  river  the  rate  from  St.  Louis 
to  San  Francisco  would  be,  not  lower  than  that  from  New  York, 
as  the  complainants  insist,  but  higher,  unless  the  direct  rail  rate 
from  St.  Louis  to  San  Francisco  ought  reasonably  to  be  less  than 
the  rate  established  from  New  Yoi-k  by  water  competition. 

That  the  same  system  is  not  in  force  in  both  the  east  and  the 
west  is  due  to  differing  conditions  in  those  sections.  Upon  the 
Pacific  Coast  the  great  cities  and  the  strong  commercial  inter- 
ests are  located  at  the  seaboard.  There  are  no  interior  towns 
of  sufficient  strength  to  insist  upon  a  change  of  this  policy,  and 
apparently  there  never  can  be  so  long  as  the  present  system 
continues  in  force.  In  the  east  this  is  otherwise.  Formerly 
manufacturing  was  mainly  done  upon  the  Atlantic  seaboard, 
but  to-day  great  cities  have  grown  up  and  great  commercial 
enterprises  have  developed  in  the  middle  west,  and  these 
demand  an  entrance  to  the  markets  of  the  Pacific  Coast  in 
tones  which  cannot  be  disregarded. 


TKA^SCONTINENTAL   FREiGHT   KATES  451 

Still  more  important  is  the  situation  of  the  carriers  them- 
selves. Those  lines  which  distribute  upon  the  Pacific  Coast 
control  the  adjustment  of  rates  into  that  section,  and  their 
interests  are  united  to  maintain  the  present  system.  Indeed  it 
is  declared  that  to  reduce  intermediate  rates  to  a  level  with 
terminal  rates  would  bankrupt  these  lines,  and  it  certainly 
would  have  a  most  serious  effect  upon  their  revenues.  In  the 
east  we  find  many  important  systems  beginning  at  the  Missouri 
river  or  in  the  middle  west.  It  is  for  the  interest  of  these 
systems  that  traffic  should  originate  at  the  eastern  termini  of 
their  respective  lines.  Not  only  do  they  obtain  more  for  the 
transportation  of  traffic  so  originating  than  they  obtain  from 
their  division  upon  traffic  originating  farther  east,  but  they  also 
build  up  the  industries  of  that  locality  and  therefore  remove 
these  from  the  sphere  of  water  competition.  Moreover  the 
traffic  which  the  eastern  connections  of  the  transcontinental 
lines  carry  farther  east  is  insignificant  in  amount  and  in  revenue 
returned  in  comparison  with  the  whole  amount  of  their  traffic. 
From  these  various  causes  it  has  transpired  that  the  low  rate 
which  water  competition  establishes  from  New  York  has  been 
extended  to  all  points  east  of  the  Missouri  river. 

The  Commission  in  a  very  recent  case  has  examined  and 
passed  upon  this  same  question.  Kindel  et  al.  v.  Atchison, 
Topeka  ^  Santa  Fe  Railway  Go.  et  al.,  8  I.  C.  C.  Rep.  608. 

In  that  case  the  city  of  Denver  alleged  that  by  virtue  of  its 
location  it  was  entitled  to  a  lower  rate  to  Pacific  Coast  termi- 
nals than  the  rate  from  points  on  the  Missouri  river  and  east. 
When  the  complaint  was  brought  most  rates  were  higher  from 
Denver  than  from  the  Missouri  river.  The  only  fact  upon 
which  Denver  based  that  claim  was  its  location ;  being  one 
thousand  miles  nearer  San  Francisco  than  Chicago,  and  nearly 
two  thousand  miles  nearer  San  Francisco  than  New  York,  it 
insisted  that  it  was  entitled  to  a  better  rate.  The  Commission 
held  that  this  did  not  necessarily  follow  ;  that  while  Denver  was 
nearer  in  geographical  miles  it  was  not  of  necessity  nearer  in 
transportation  units.  The  actual  cost  of  transporting  meieban- 
dise  from  New  York  to  San  Francisco  by  water  was  probably 


452  1;.\1L\\AN     1' KOI '.LOIS 

materially  less  than  the  cost  of  carrying  it  by  rail  from  Denver 
to  San  Francisco.  We  said  that  if  these  carriers  extended  the 
low  water  rate  of  New  York  west  to  the  Missouri  river  they 
must  carry  it  still  farther  to  Denver,  but  that  we  could  not 
allinn  upon  the  mere  score  of  distance  that  the  rate  from  Denver 
should  be  lower.  We  are  satislied  with  the  disposition  of  that 
question  in  that  case,  and  it  nnist  control  the  case  before  us. 

To  avoid  any  misapprehension  it  should  be  said  that  we  .  .  . 
do  not  decide  in  this  case  that  circumstances  and  conditions 
might  not  be  such  as  to  require  a  lower  rate  from  the  nearer 
point.  If  in  this  case  the  industries  of  St.  Louis  and  the  mid- 
dle west  showed  that  they  were,  by  this  adjustment  of  tariffs, 
excluded  from  the  markets  of  the  Pacific  Coast  their  complaint 
might  merit  different  consideration.  But  such  is  not  the  fact ; 
on  the  contrary  it  appears  that  in  recent  years  under  the  influ- 
ence of  this  rate  the  industries,  both  manufacturing  and  jobbing, 
of  the  middle  west  have  made  steady  gains  upon  the  Pacific 
Coast.  To-day,  of  all  commodities  transported  into  that  terri- 
tory which  originate  east  of  the  Missouri  it  is  estimated  that 
more  than  60  per  cent  is  from  points  west  of  Buffalo  and  Pitts- 
burg. The  only  grounds  upon  which  the  complainants  rest  in 
support  of  this  contention  are  the  greater  proximity  of  the 
middle  west,  and  the  fact  that  these  graded  rates  were  formerly 
in  effect ;  neither  of  which  entitle  them  to  the  relief  asked  for. 

It  should  also  be  observed  that  nothing  in  this  decision  would 
in  any  way  interfere  with  the  right  of  the  transcontinental  lines 
to  put  in  effect,  if  they  saw  fit,  such  a  system  of  graded  rates 
as  the  complainants  ask  for.  Carriers  may  or  may  not  at  their 
option  meet  the  low  water  rate  from  New  York.  It  is  for  the 
manifest  interest  of  those  lines  beginning  at  Chicago  and  points 
west  to  maintain  lower  rates  from  there  than  from  the  sea- 
board, and  if  in  the  future  such  rates  are  established  they  will 
not  be  in  violation  of  the  Act  to  Regulate  Commerce. 

That  branch  of  the  complaint  most  discussed  both  in  testi- 
mony and  upon  the  argument  was  the  alleged  discrimination 
by  the  tariff  of  June  25,  1898,  against  the  jobber  of  the  mid- 
dle west  in  favor  of  the  jobber  upon  the  Pacific  Coast.    This 


TKANSCONTINENTAL  FREIGHT  RATES  453 

discrimination  is  accomplished,  according  to  the  complainants,  by 
too  wide  a  differential  between  car  loads  and  less  than  car  loads, 
by  the  application  of  improper  varied  commodity  rates  and  by 
the  refusal  to  permit  shipment  in  mixed  car  loads.  Of  these 
three  things  the  differential  was  by  far  the  most  prominent. 

The  statement  of  facts  shows  that  most  traffic  from  the  east 
to  the  Pacific  Coast  moves  upon  commodity  rates.  Of  these 
rates  nearly  one  half  name  for  the  same  conunodity  a  car-load 
and  less  than  car-load  rate;  about  one  third  apply  in  any  quan- 
tity, making  no  distinction  between  car  loads  and  less  than  car 
loads,  while  the  remaining  one  sixth  apply  to  car  loads  only, 
leaving  the  less  than  car-load  shipments  to  move  under  the  class 
rate.  The  differential  between  car  loads  and  less  than  car  loads 
is  all  the  way  from  nothing  to  Jjl.50  per  hundred  pounds,  per- 
haps in  instances  even  greater.  Many  of  the  differentials  are 
exactly  50  cents ;  tlie  complaint  alleges  that  this  is  the  average 
differential  and  the  case  finds  that  this  is  approximately  true. 
Are  these  differentials  in  violation  of  the  Act  to  Regulate  Com- 
merce? 

In  determining  this  the  first  inquiry  is,  by  what  standard 
shall  the  propriety  of  a  differential  between  car  loads  and  less 
than  car  loads  be  estimated  ?  The  complainants  urged  that  the 
differential  was  justified  largely  by  difference  in  expense  of 
handling  traffic  at  terminals,  and  that  this  difference  when 
ascertained  ought  to  constitute  the  difference  between  car  loads 
and  less  than  car  loads ;  that  the  differentials  thus  arrived  at 
would  be  approximately  a  fixed  quantity,  not  varying  materially 
with  the  rate  or  with  the  distance.  This  proposition  can  hardly 
be  assented  to.  It  really  assumes  that  the  propei-  differential  is 
determined  by  the  difference  in  the  cost  of  handling  the  two 
kinds  of  traffic.  But  it  appears  from  the  statement  of  fact  that 
this  difference  in  expense  is  not  confined  to  terniimil  points.  It 
costs  appreciably  more  to  haul  less  than  car-load  business  than 
car-load.  If,  therefore,  the  reason  for  the  standard  suggested 
by  the  complainants  is  a  valid  one,  the  differential  ought  to 
increase  with  the  distance,  and  therefore  ordinarily  with  the 
rate.  ******** 


454  l^\IL^\■A^•  pijop.lems 

111  nuliT  lo  uiuloisiaiul  llic  claim  of  tlie  defendants  it  is 
lU'i'i'ssarv  to  have  clearly  in  mind  the  entire  situation.  Trallic 
transported  from  the  east  to  the  Pacilic  Cloast  at  the  present 
time  is  controlled  either  by  jobbers  in  the  middle  west  or  by 
jobbers  upon  the  Pacific  Coast.  The  middle  west  jobbers  send 
their  merchandise  almost  entirely  in  less  than  car-load  lots.  In 
the  very  nature  of  the  case  that  freight  is  not  subject  to  ocean 
competition,  and  the  carrier  may  safely  disregard  such  competi- 
tion in  the  making  of  these  less  than  ear-load  rates  which  apply 
to  that  transportation. 

The  Pacific  Coast  jobber  upon  the  other  hand  brings  his  sup- 
plies from  the  east  to  his  warehouse  almost  entirely  in  large  lots. 
It  is  found  that  90  per  cent  of  his  entire  rail  traffic  moves  in  car 
loads.  Of  the  remaining  10  per  cent  a  considerable  part  is  in 
the  nature  of  emergency  orders,  which  require  quick  delivery 
and  which  could  not  therefore  be  transported  by  water.  In 
order  to  obtain  the  business  of  the  Pacific  Coast  jobber  it  is  nec- 
essary that  the  rail  carrier  make  an  attractive  car-load  rate, 
the  less  than  car-load  being  of  comparatively  little  importance. 
There  is  a  certain  amount  of  less  than  car-load  traffic  which  can 
and  does  move  by  water,  as  the  statement  of  actual  movements 
by  clipper  ship  and  the  tariffs  of  the  Panama  route  show ;  but 
broadly  speaking  the  less  than  car-load  business  is,  from  its  point 
of  origin,  not  subject  to  water  competition ;  the  car-load  freight 
is  that  for  which  tbe  rail  carrier  mainly  contends  with  the 
ocean ;  hence  water  competition  tends  to  produce  a  wide  differ- 
ence between  the  car-load  and  less  than  car-load. 

There  is  still  another  reason.  The  fact  that  business  origi- 
nating in  the  middle  west  almost  of  necessity  moves  by  rail, 
immediately  suggests  the  thought  that  it  would  be  for  the  ulti- 
mate interest  of  those  lines  which  begin  in  the  middle  west  to 
make  such  rates  as  would  enable  all  business  to  be  done  by  that 
section.  Up  to  the  present  time  two  causes  have  prevented  this. 
First,  it  has  been  in  the  interest  of  certain  lines,  notably  the 
Southern  Pacific,  that  traffic  should  move  from  the  Atlantic 
seaboard,  and  second,  the  Pacific  Coast  jobber  has  objected  to 
being  extinguished.    His  warehouse  is  by  the  sea,  and  if  the  rail 


TRANSCONTINENTAL   FEEIGHT   RATES  455 

line  makes  a  rate  which  will  not  permit  him  to  bring  traffic  by 
rail  and  do  business  against  his  eastern  competitor  he  must  and 
he  will  turn  to  the  ocean  for  relief.  This  may  be  disastrous  to 
him  ;  it  proved  to  be  so  when  tried  ;  but  it  is  even  more  disas- 
trous to  the  railway.  For  the  purpose  therefore  of  maintaining 
peace,  and  at  the  same  time  obtaining  a  large  part  of  the  busi- 
ness of  the  Pacific  Coast  jobber,  the  railroad  aims  to  maintain 
a  differential  which  will  enable  that  jobber  to  do  business. 

We  have  next  to  consider  the  interest  of  the  wholesaler  upon 
the  coast  and  in  the  middle  west,  and  it  is  really  the  conflicting 
claims  of  these  parties  which  lie  at  the  bottom  of  this  contro- 
versy. The  jobber  upon  the  Pacific  Coast  insists  that  he  rests 
under  certain  disadvantages  in  comparison  with  his  eastern  rival 
which  render  it  extremely  difficult  for  him  to  maintain  himself 
without  some  advantage  in  the  freight  rate,  and  that  his  nat- 
ural advantage  of  location  entitles  him  to  this  preference.  The 
alleged  disadvantages  have  been  fully  stated  in  the  findings  of 
fact.  They  mainly  spring  from  the  limited  teiritory  to  which 
his  operations  are  necessarily  confined.  Owing  to  the  adjust- 
ment of  freight  rates  he  cannot  operate  in  any  event  more  than 
about  three  hundred  miles  to  the  east,  and  the  same  distance 
north  or  south  brings  him  to  a  point  where  both  his  eastern  rival 
and  his  local  competitor  have  an  advantage  in  the  rate.  The 
field  which  is  open  to  him  is  narrow,  estimated  in  square  miles, 
and  even  narrower  when  estimated  by  the  population  which  he 
can  reach.  From  this  it  results  that  the  volume  of  his  sales  is 
small  and  the  expense  of  transacting  business  large  in  propor- 
tion ;  still  further  his  location  and  the  manner  in  which  he  ob- 
tains his  supplies  force  him  to  carry  a  disproportionately  large 
stock.  The  Pacific  Coast  jobber  finds  it  extremely  difficult  to 
maintain  himself  against  his  eastern  rival  without  some  advan- 
tage in  the  transportation  charge,  and  we  have  seen  that  his 
location  upon  the  seaboard  by  opening  two  avenues  of  commu- 
nication gives  him  a  certain  advantage  in  this  resj^ect. 

Most  of  the  limitations  under  which  the  jobber  upon  tlie 
Pacific  Coast  works  do  not  attach  to  the  jobber  in  the  middle 
west  who  is  competing  upon  tlie  Pacific  Coast.    His  territory 


4:)G  i;ailnva\'  imjoi'.lkjms 

is  extensive  and  the  volume  of  his  sales  large.  lie  goes  east  to 
New  England,  south  to  the  Gulf  of  JNIexico,  north  to  the  Do- 
minion line,  west  1700  miles,  and  ^yhethe^  he  does  or  does  not 
cover  this  narrow  strip  west  of  the  115th  meridian  in  no  way 
affects  his  general  prosperity  or  his  continued  existence.  This 
is  true  not  of  every  jobber  in  the  middle  west  but  of  those  great 
houses  in  whose  interest  this  complaint  is  prosecuted. 

The  controversy  has  been  conducted  by  the  railways  and  the 
two  sets  of  wholesalers  already  referred  to,  but  it  must  not 
be  decided  with  reference  to  their  necessities  or  desires  alone. 
There  is  another  interest  seldom  represented  upon  these  hear- 
ings, but  always  to  be  considered  by  this  Commission,  and  that 
is  the  consumer.  No  adjustment  of  rates  made  in  the  interest 
of  carriers  or  of  wholesalers  should  be  permitted  if  it  antago- 
nizes unduly  the  public  welfare.  Considering  the  question  be- 
fore us  as  an  economic  problem  two  things  should  be  secured. 
First,  these  commodities  should  be  brought  to  the  consumer  at 
the  least  possible  expense.  Second,  in  both  transportation  and 
distribution  unfettered  competition  should  be  maintained,  there- 
by securing  to  the  consumer  the  benefits  to  which  he  is  entitled. 

The  greater  part  of  the  supplies  consumed  upon  the  Pacific 
Coast  originate  twenty-five  hundred  miles  from  the  point  of  con- 
sumption, and  these  supplies  should  be  transported  that  twent}^- 
five  hundred  miles  in  the  cheapest  manner.  Waste  is  always 
expensive  ;  if  the  railways  are  required  to  carry  this  merchandise 
in  an  extravagant  manner  that  extravagance  is  finally  borne 
by  the  public.  We  have  seen  that  the  actual  cost  of  handling 
this  traffic  in  less  than  car  loads  is  50  per  cent  greater  than  the 
cost  of  handling  car  loads.  It  seems  probable,  therefore,  that 
the  cheapest  way  in  which  these  supplies  can  be  taken  across 
the  continent  and  distributed  to  the  consumer  is  by  transporting 
them  in  solid  car  loads  from  the  factory  to  the  warehouse  upon 
the  Pacific  (^oast  and  thence  distributing  to  the  retailer  in  less 
than  car  loads,  although  the  effect  of  this  may  be  somewhat 
diminished  by  the  back  haul  from  the  wholesaler  to  the  interior 
point  which  is  not  performed  to  the  same  extent  where  goods 
are  sent  across  the  continent  in  less  than  car-load  shipments 


TEANSCONTINENTAL  FREIGHT  RATES  457 

directly  to  the  store  of  the  retailer.  It  would  in  our  opinion  be 
unfortunate  from  an  economic  standpoint  to  establish  a  condi- 
tion which  would  require  distribution  entirely  or  mainly  in  less 
than  car-load  lots  from  the  middle  west. 

It  is  urged  however  that  this  tariff  in  effect  stifles  competi- 
tion, thereby  increasing  the  price  to  the  consumer.  It  is  alleged 
that  this  is  done  in  two  ways,  first,  by  discouraging  water  com- 
petition and  thereby  permitting  the  maintenance  of  too  high  a 
rate,  second,  by  restricting  the  market  in  which  the  retailer  can 
buy,  thus  increasing  the  price  to  him  and  his  customer. 

The  rate  war  of  1894  originated  in  the  desire  of  the  mer- 
chants of  San  Francisco  to  obtain  a  lower  freight  rate.  The 
means  which  they  employed  was  ocean  transportation,  and  in 
that  contest  the  jobber  of  the  Pacific  Coast  was  upon  the  side 
of  the  ocean.  As  a  matter  of  retaliation  rail  lines  gave  to  the 
eastern  jobber  every  facility  for  entering  Pacific  Coast  terri- 
tory. Not  only  was  the  general  level  of  rates  reduced  but  dif- 
ferentials were  abolished  and  the  privilege  of  mixing  shipments 
increased. 

The  result  as  has  been  noted  in  the  statement  of  facts  was 
disastrous  to  both  parties.  The  San  Francisco  jobber  lost  in 
territory  and  in  profits ;  the  railways  suffered  severely  in  the 
diminution  of  revenues.  At  the  expiration  of  three  years  both 
parties  were  anxious  for  relief  and  were  seeking  some  ground 
of  compromise.  This  was  the  genesis  of  the  meetings  at  Del 
Monte  and  Milwaukee,  and  it  was  to  effectuate  this  purpose 
that  the  tariff  of  June  25,  1898,  was  promulgated.  The  rail- 
way desired  to  retain  its  business  at  higher  rates ;  the  jobber 
upon  the  coast  desired  to  retain  his  territory  and  increase  his 
profits.  There  can  be  no  doubt  that  the  railways  understood 
that  the  jobbers  would  patronize  their  lines  at  the  higher  rate, 
and  that  the  jobbers  had  given  them  so  to  understand.  There 
was  no  definite  agreement  of  this  sort,  nothing  like  that  involved 
in  the  old  special  contract  system.  It  was  rather  a  result  grow- 
ing out  of  the  mutual  interest  of  both  parties. 

The  practical  interpretation  of  this  understanding  has  been 
to  enable  the  railways  to  retain  just  about  the  same  proportion 


4:.s  i:ail\\av  I'Kor.Li-LMS 

of  iralVk'  at  materially  better  rates.  The  tonnage  brought  from 
iho  Atlantic  to  the  Paeitic  Coast  since  June  25,  1898,  has  not 
differed  greatly  troni  that  of  two  or  tiiree  years  before.  It 
ought  perhaps  to  have  increased,  for  the  Spanish  war  had  dealt 
this  traffic  a  severe  blow  both  by  increasing  the  rates  of  insur- 
ance and  by  decreasing  the  su[)ply  of  ships,  and  with  the  close 
of  that  war  this  traffic  might  be  expected  to  recover.  Clearly  it 
is  likely  to  do  so  in  the  future.  The  tonnage  moving  during  the 
present  year  will  probably  greatly  surpass  tluit  of  the  last  six 
or  seven  years  and  within  two  years  to  come  will  be  greater  than 
at  any  time  since  1880.  We  find  a  disposition  upon  the  part 
of  the  coast  jobbers  to  patronize  the  ocean  whenever  a  rate  is 
offered  which  is  decidedly  advantageous.  It  must  be  remem- 
bered that  the  effect  of  the  rate  war  of  1894  was  to  depi-ess 
ocean  as  well  as  rail  rates. 

Rail  lines  could  not  probably  increase  their  car-load  rates, 
and  if  we  were  to  order  a  reduction  of  these  differentials  that 
would  result  in  a  reduction  of  the  less  than  car-load  rate.  An- 
other result  would  be  to  compel  the  coast  jobber  to  seek  cheaper 
means  of  transportation  wliich  might  finally  lead  to  a  further 
reduction  of  the  car-load  rate  and  to  the  same  disturbances  which 
have  previously  occurred.  We  have  already  said  that  the  rea- 
sonableness of  the  less  than  car-load  rates  considered  by  them- 
selves is  not  questioned.  Ought  we  then  to  order  this  reduction? 
If  the  effect  of  the  present  tariff',  owing  to  any  understanding 
between  the  rail  lines  and  the  coast  jobbers,  was  to  extinguish 
or  seriously  cripple  ocean  competition  it  would  be  our  plain  duty 
to  interfere ;  but  in  fact  this  competition  seems  to  be  in  a  pros- 
perous state.  If  the  effect  were  to  maintain  a  scale  of  rates 
unreasonably  high,  our  duty  would  be  equally  plain;  but  there 
is  no  suggestion  that  this  is  true  of  the  present  terminal  rates. 
We  are  not  unmindful  of  the  fact  that  a  reduction  in  the  ter- 
minal rate  works  a  corresponding  reduction  at  all  points  which 
base  upon  that  rate  ;  nor  do  we  overlook  the  fact,  although  there 
is  no  mention  of  it  in  this  case,  that  the  earnings  of  transcon- 
tinental lines  indicate  tliat  some  reduction  in  their  rates  might 
properly  be  made ;  but  we  are  of  the  opinion  that  if  any  such 


TRANSCONTINE^'TAL   FREIGHT   RATES  459 

reduction  is  to  take  place  it  should  be  in  the  liigh  and  discrim- 
inating intermediate  rate  rather  than  in  the  already  extremely 
low  terminal  charge.  Competition  is  not  healthy  when  it  be- 
comes destructive  to  the  competing  parties.  It  was  said  upon 
the  argument  that  this  present  adjustment  provided  a  state  of 
"  equilibrium  "  under  which  both  the  rail  and  the  water,  the  east 
and  the  west  could  fairly  compete.  So  far  as  the  testimony 
shows  we  are  inclined  to  think  that  this  is  true  of  competition 
by  water. 

It  is  said  that  this  tariff  is  unlawful  because  it  excludes  the 
jobber  of  the  middle  west  from  this  territory,  gives  to  the  whole- 
saler upon  the  Pacific  Coast  a  monopoly,  lestricts  the  market 
in  which  the  retailer  can  buy  and  thereby  enhances  the  price  to 
the  consumer.  The  territory  of  the  Pacific  Coast  jobber  is  ex- 
tremely limited,  and  he  is  inclined  to  insist  that  he  should  be 
left  in  the  peaceable  possession  of  that  territory;  that  the  job- 
ber of  the  middle  west  whose  territory  extends  a  thousand  miles 
to  the  east  and  seventeen  hundred  miles  to  the  west  ought  not 
to  covet  the  narrow  strip  which  lies  beyond  the  115th  meridian. 
We  do  not  accede  altogether  to  this  view.  The  adjustment  of 
rates  upon  the  Pacific  Coast  is  such  that  it  confines  the  local 
jobber  to  certain  spheres  making  them  almost  omnipotent  within 
those  spheres;  and  for  this  reason  competition  from  the  east, 
which  under  this  same  adjustment  of  rates,  tends  to  diffuse 
itself  over  the  whole  coast,  is  important.  If  there  be  no  con- 
trolling reason  to  the  contrary,  rates  should  be  so  adjusted  as 
to  permit  the  operation  of  the  wholesaler  from  the  middle  west 
throughout  all  this  territory.  *  *  *  * 

Viewing  the  case  in  this  broad  sense  we  find  that  these  differ- 
entials are  not  abnormal  when  compared  with  others  in  differ- 
ent parts  of  this  country  at  the  present  time ;  that  they  are  not 
greater  than  those  in  effect  under  the  west-bound  transconti- 
nental tariff  of  1893,  and  not  greatly  disproportionate  to  the 
actual  difference  in  cost  of  service.  Considering  them  with 
respect  to  their  bearing  u])on  the  parties  immediately  interested, 
namely,  the  carriers  and  the  two  classes  of  jobbers,  we  find  that 
they  conserve  the  interests  of  the  carrier,  tliat  tliey  give  to  the 


KiO  i; A  11. WAV    rijor.LEMS 

jobluT  iijion  the  Pacific  Coast  a  ineasuie  of  advantage  to  which 
he  is  perhaps  entitled  by  his  kication,  and  which  lie  ninst  })rob- 
ably  have  if  he  is  to  continue  to  exist,  while  they  permit  the 
jobber  of  the  middle  west  to  transact  a  considerable  amount  of 
business  in  this  territory  at  a  reasonable  profit.  Viewed  as  an 
economic  problem,  the  tariff  fosters  that  method  of  distribution 
wiiich  is  probably  the  cheapest  u})on  tlie  coast,  and  at  the  same 
time  permits  reasonable  competition  and  thereby  secures  to 
the  customer  the  full  beneiits  of  such  competition.  This  situa- 
tion is  in  some  sense  the  outgrowth  of  past  experience.  It  is 
satisfactory  to  most  interests  upon  the  Pacific  Coast,  and  we 
are  not  disposed  to  find  fault  with  the  adjustment  of  rates  as 
a  whole. 

While,  however,  we  cannot  condemn  this  tariff  as  a  whole 
upon  the  grounds  put  forward  by  the  complainants,  we  are  of 
the  opinion  that  many  of  its  details  are  in  violation  of  law. 
Over  four  hundred  commodity  rates  apply  to  car  loads  only, 
leaving  the  movement  of  these  commodities  in  less  than  carloads 
to  be  governed  by  the  class  rate.  This  produces  a  differential 
which  even  under  the  peculiar  circumstances  of  this  traffic  is  in 
many  cases  excessive,  provided  there  be  any  commercial  reason 
for  a  corresponding  less  than  car-load  rate.  In  some  instances 
there  is  none.  Coal,  for  example,  moves  usually  in  car  loads  and 
takes  a  low  commodity  rate.  What  little  movement  occurs  in 
less  than  car-load  lots  is  not  competitive  with  car-load  shipments, 
and  may  well  be  governed  by  the  class  rate,  although  the  differ- 
ence between  the  two  would  otherwise  be  undue.  Many  similar 
instances  will  readily  occur,  but  we  are  impressed  from  an 
inspection  of  these  schedules  that  there  are  still  many  other 
instances  in  which  the  difference  is  altogether  too  great. 

It  is  impossible  to  fix  any  standard  by  which  these  differen- 
tials shall  be  determined,  for  the  reason  that  circumstances  often 
render  the  application  of  a  greater  differential  proper  in  one  case 
than  in  another.  This  record  finds  that  many  of  the  commodity 
rates  show  a  differential  of  50  cents  per  100  pounds,  and  it  is 
said  that  this  may  be  termed  the  average  differential ;  it  further 
finds  that  the  cost  of  handling-  this   less  than  car-load  traffic 


TRANSCONTINENTAL  FREIGHT  RATES  461 

exceeds  the  cost  of  handling  car-load  traffic  by  about  50  per 
cent.  We  are  inclined  to  think  that  a  differential  which  is  at 
once  more  than  50  cents  per  100  pounds  and  more  than  50  per 
cent  of  the  car-load  rate  is  prhna  facie  excessive.  We  do  not 
mean  that  every  differential  may  lawfully  equal  this,  nor  yet 
that  every  differential  which  exceeds  this  is  unlawful,  but  that 
a  differential  exceeding  this  requires  special  justification. 


FiFER,  Commissioner,  dissenting: 

I  concur  in  the  opinion  to  the  extent  of  deeming  it  inadvisable 
to  attempt,  without  further  investigation,  a  settlement  of  the 
great  questions  involved  in  this  continental  situation. 

The  undisputed  facts  involve  three  propositions  :  the  postage 
stamp  or  blanket  rate  for  the  whole  eastern  territory  from  the 
Atlantic  Coast  to  the  Missouri  river ;  the  wide  difference 
between  the  car-load  and  less  than  car-load  rate  on  west-bound 
traffic,  and,  the  system  common  to  all,  the  western  mountain 
territory  of  making  the  rates  from  the  east  to  any  intermediate 
point  by  adding  to  the  through  rate  to  any  Pacific  Coast  terminal 
the  local  rate  back  to  the  intermediate  point. 

Concerning  the  first,  while  it  may  be  conceded  that  the  so- 
called  blanket  rate  is  too  firmly  established,  and  has  proved  in 
too  many  instances  of  a  great  utility  and  profit  to  both  the 
road  and  its  patrons  to  warrant  me  in  denouncing  it,  yet  I  am 
firmly  of  opinion  that,  carried  to  the  extent  of  above  a  thousand 
miles,  as  in  this  instance,  on  practically  all  the  schedules,  is 
such  an  exaggeration  of  the  system  as  to  work  serious  injustice 
to  the  jobbers  of  the  middle  west  by  robbing  them  of  the  natural 
advantages  of  geographical  location  to  which  they  are  as  much 
entitled  as  are  points  located  upon  the  Atlantic  Coast,  which 
for  that  very  reason  are  favored  by  rates  that  are  denied  to  those 
situated  farther  west. 

For  this  reason  it  seems  to  me  the  only  solution  of  the  prob- 
lem which  will  be  fair  to  all  parties  is  the  graded  rate,  perhaps 
not  in  the  proportions  formerly  in  force  ;  but  that,  at  least,  rec- 
ognizes the  advantage  of  proximity  to  the  western  market  which 


Pittsburg  enjoys  over  Mew  York,  Chicago  over  Pittsburg,  and 
the  Missouri  river  over  CUiica^o. 

There  seems  to  me  to  be  just  ground  for  protest  against  the 
thrt'orentials  between  carload  and  less  than  car-load  rates.  These 
differences  have  been  within  a  comparatively  late  period  so  much 
increased  as  to  lead  to  the  inferen(;e,  inevitable  tome,  that  they 
have  been  established  with  deliberate  intention  to  discourage 
less  than  car-load  shipments.  To  what  extent  these  differentials 
should  be  moditied,  if  at  all,  must  depend  upon  a  wider  inquiry 
and  deeper  investigation  than  we  have  been  able  to  accomplish 
at  this  stage  of  the  present  case. 

The  system  of  rate  making  which  establishes  rates  for  inter- 
mediate points  by  a  combination  of  the  through  rate  to  the  coast 
terminal  point  and  the  local  rate  back  to  destination  has  much 
in  its  favor,  as  water  competition  is  held  to  justify  even  unrea- 
sonably low  through  rates,  and  as  the  freight  thus  favored  is 
secured  by  the  railroads  by  a  rate  which  is  to  prevent  its  carriage 
by  water  —  all  freight,  in  theory,  is  treated  as  if  it  reached  the 
coast  by  water  and  takes  its  place  thereafter  as  local  freight 
east  —  instead  of  through  freight  west. 

But  there  comes  a  situation  and  a  locality  when  this  theory 
of  rate  making  must  break  down  of  its  own  weight,  and  with  a 
blanket  rate  from  the  east  reaching  to  the  Missouri  river,  the 
short  middle  west  haul,  say  from  the  Missouri  river  to  Ogden, 
is  out  of  all  proportion  to  the  haul  from  tlie  Missouri  river  to 
New  York,  from  New  York  to  San  Francisco  l)y  water  and  back 
by  rail  to  Ogden.  Upon  its  face  such  a  condition  carries  sus- 
picion, and  it  requires  some  explanation  to  justify  a  situation 
wliere  a  haul  practically  a  thousand  miles  shorter  at  each  end 
is  higher  than  the  through  rate.  Just  how  far  the  combination 
through  rate  with  the  local  back  may  extend  under  these  cir- 
cumstances will  depend  upon  where  it  meets  a  reasonable  rate 
from  the  east,  and  on  that  question  in  this  case  the  evidence  is 
incomplete  ;  we  having  developed  only  enough  to  bring  me  to 
fear  that  the  schedules  in  force  are  discriminating  and  unjust. 

The  opinion  finds  that  the  Pacific  Coast  jobber  carries  his 
business  not  farther  east  than  the  115th  meridian,  or  about  300 


TRANSCONTINENTAL   FREIGHT   RATES  4Go 

miles  from  the  coast,  and  I  am  inclined  to  believe  that  the  evi- 
dence fairly  sustains  that  finding.  But  an  examination  of  the 
tariffs  on  file  in  the  office  of  the  Commission  shows  that  the 
zone  of  their  operations  may  be  much  wider,  tlie  combination 
rate  basing  on  Pacific  Coast  termmals  extending  as  far  east  as 
800  or  more  miles  in  numerous  instances. 

For  many  articles  of  hardware,  such  as  axes  and  other  edged 
tools,  picks  and  mattocks,  bar,  rod  and  sheet  iron  and  steel, 
billets,  blooms,  ingots  and  scrap  iron,  the  combination  rate 
extends  east  on  the  Southern  Pacific  Railroad  (Ogden  line)  to 
various  points  from  Millis,  Wyo.,  828  miles  east  of  Sacramento, 
to  Cheyenne,  Wyo.,  1239  miles  east  of  Sacramento,  except  on 
picks  and  mattocks,  on  which  the  combination  rate  equals  the 
intermediate  rate  at  Rye  Patch,  Nev.,  273  miles  east  of  Sacra- 
mento. On  the  Southern  Pacific  (El  Paso  line)  the  combination 
rate  extends  east  to  various  points  from  Strauss,  N.M.,  797 
miles  east  of  Los  Angeles,  to  San  Elizario,  Tex.,  833  miles  east 
of  Los  Angeles,  except  on  picks  and  mattocks  on  which  the 
combination  rate  equals  the  intermediate  rate  at  Montezuma, 
Ariz.,  400  miles  east  of  Los  Angeles.  On  the  Great  Northern 
line  the  combination  rate  extends  east  to  various  points  from 
Troy,  Mont.,  579  miles  east  of  Portland,  on  picks  and  mat- 
tocks, to  Wagner,  Mont.,  1042  miles  east  of  Portland,  on  billets, 
blooms,  etc.  On  the  Northern  Pacific  the  combination  rate 
tends  east  to  various  points  from  Noxon,  ]\Iont.,  662  miles  east 
of  Portland,  on  picks  and  mattocks,  to  Central  Park,  Mont., 
1009  miles  east  of  Portland,  on  billets,  blooms,  etc.  On  tl:e 
Santa  Fe  System  the  combination  rate  extends  east  to  various 
points  from  Amboy,  Cal.,  226  miles  east  of  Los  Angeles,  on 
picks  and  mattocks,  to  Allmquerque,  N.M.,  889  miles  east  of 
Los  Angeles,  on  billets,  blooms,  etc. 

Thus  it  will  be  seen  that  while  the  business  of  the  coast  jobber 
may,  through  his  own  volition  or  methods  of  transacting  business, 
be  confined  to  territory  lying  west  of  the  115th  meridian,  there 
is  nothing  in  existing  tariffs  that  would  in  any  way  so  limit  his 
field  of  operations.  So  far  as  these  rates  are  concerned,  he  can 
apparently  do  business  as  profitably  as  far  east  as  the  points 


4(14  KAILW.W     rilor.LKMS 

nanuHl  lu?  lie  can  in  tlu'  tonilory  lying  between  the  115111  merid- 
ian and  the  Paeilie  Coast.  It  slionld  be  noted  that  the  differ- 
enci's  betweiMi  ihe  car-load  and  less  than  car-load  rates  complained 
of  in  this  ease  serve,  nnder  this  method  of  making  rates  to  the 
intermediate  point,  to  greatly  enlarge  the  Pacific  Coast  jobber's 
s[ih(  re  of  operations,  and  tliat  he  will  sooner  or  later  take  full 
ailvantage  of  the  opportunity  thus  afforded  is  to  be  expected. 

It  seems  to  me  necessary  that  in  the  further  mvestigation  to 
which  the  opinion  in  this  case  tends,  the  feature  of  reasonable 
rates  for  the  whole  so-called  western  mountain  territory  should 
be  made  a  main  issue  that  the  inquiry  may  develop  whether  or 
not  the  zone  of  combination  rates  should  not  be  narrowed  to 
points  nearer  the  coast,  and  thus  remove  not  only  a  burden 
on  our  commerce  but  an  apparent  discrimination  that  invites 
criticism,  even  if  justifiable. 


The  Nevada  Railroad  Commission  Case^ 

Lane,  Commissioner : 

The  highest  main-line  rates  to  be  found  in  the  United  States 
are  those  from  eastern  points  to  stations  in  Nevada.  For  carry- 
ing a  carload  of  first-class  traffic  containing  20,000  pounds  from 
Omaha  to  Reno  the  Union  Pacific-Southern  Pacific  line  charges 
'f858.  If  a  like  carload  is  carried  154  miles  further,  to  Sacra- 
mento, the  charge  is  but  ^600.  The  first-class  rate  to  the  more 
distant  point,  Sacramento,  is  i3  per  100  pounds,  and  to  the 
nearer  point,  Reno,  !$4.29  per  100  pounds.  If  a  like  carload  of 
freight  originates  at  Denver,  500  miles  west  of  Omaha,  the  same 
rates  to  Reno  and  Sacramento  apply  ;  and  if  the  freight  originates 
at  Boston,  1700  miles  east  of  Omaha,  the  rates  are  the  same. 
This  interesting  rate  condition  arises  out  of  two  simple  facts: 
(1)  The  whole  of  the  United  States  from  Colorado  common 
points  to  the  Atlantic  seaboard,  barring  a  few  of  the  southeastern 

^  Decided  June  6,  1910.  19  Interstate  Commerce  Commission  Report,  238. 
Transcontinental  rates  are  discussed  in  Ripley's  Railroads :  Rates  and  Regula- 
tion, pp.  39.5,  610. 


TRANSCONTINENTAL  FREIGHT  RATES  465 

states,  is  one  wide  group  or  zone  from  which  practically  uniform 
rates  to  Pacific  coast  water  points  are  made,  and  (2)  the  rates 
to  Reno  are  based  upon  these  blanket  rates  to  coast  cities,  and 
amount  to  the  sum  of  the  rates  to  the  coast  plus  the  local  rates 
back  to  point  of  destination. 

This  great  zone,  extending  from  the  Rocky  INIountains  to  the 
Atlantic,  a  distance  of  over  2000  miles,  from  which  practically 
uniform  rates  are  made  to  Pacific  coast  terminal  cities,  is  prob- 
ably without  parallel  in  the  railroad  world,  excepting  for  a  similar 
eastward  blanket  extended  to  Pacific  coast  producing  points. 
The  zone  m  which  the  same  rates  apply  on  California  citrus 
fruits,  for  instance,  extends  from  Salt  Lake  City  on  the  west  to 
Portland,  Me.  It  is  manifest  that  the  transcontinental  railroads 
have  made  a  near  approximation  to  the  postage-stamp  system  of 
rate  makmg.  Their  policy  has  been  to  give  to  all  eastern  pro- 
ducing markets  an  opportunity  to  sell  to  the  terminal  cities  upon 
a  parity  as  to  transportation  charges  and  to  give  to  Pacific  coast 
producing  points  access  to  all  eastern  markets  upon  a  like  basis. 
To  the  great  basin  lying  between  the  Rocky  Mountains  and  the 
Sierra  Nevadas  the  carriers  have  in  a  limited  degree  extended 
this  same  policy  by  making  rates  into  Nevada  base  on  the  coast 
cities,  and  thus,  tlie  carriers  say,  they  give  to  this  territory  the 
advantage  of  its  proximity  to  the  Pacific  seaboard  ;  that  the  rates 
to  the  latter  are  made  low  because  of  water  competition  between 
the  Atlantic  and  Pacific  ports  —  lower  than  would  be  justified 
were  Sacramento  and  San  Francisco  not  upon  the  water  —  and 
that  Nevada  rates  would  be  still  higher  but  for  its  nearness  to 
the  Pacific  coast. 

The  State  of  Nevada,  through  its  railroad  commission,  now 
comes  asking  that  Nevada  points  be  given  the  same  rates  as  are 
now  given  to  Pacific  coast  terminals,  urging  that  these  coast 
rates  are  not  unreasonably  low  in  themselves,  and  are  not  the 
product  of  any  real  water  competition. 

The  complaint  originally  filed  in  this  case  made  tlie  Southern 
Pacific  the  sole  defendant ;  the  reasonableness  of  the  rates  from 
the  east  to  Nevada  were  not  attacked,  excepting  in  so  far  as  they 
are  based  on  the  rates  to  further  western  pohits,  and  include  a 


l(u;  i:aii.\\av  tkoiuj-lms 

l);uk-liaul  cliavi^c.  As  llu'  coinplaint  tlioii  stood  the  petition  was 
that  this  ('oiuinissioii  should  hold  it  to  be  unreasonable  for  the 
Southern  Paeitie,  (U'liveriuij  freight  at  Ki'uo  and  other  points  in 
Nevada,  to  diarize  for  a  back  haul  which  is  not  in  fact  given,  and 
that  we  should  adjudi;v  the  rates  to  Sacramento  to  be  reasonable 
as  applied  to  the  intennediate  points.  Later  the  complaint  was 
amended  bv  adduig  carriers  east  of  Og-deu  forming  a  single 
tlu-ough  route  from  the  Atlantic  coast.  So  that  the  petition  of 
xSevada  now  is  that  from  all  pohits  upon  tliis  through  route 
reasonable  rates  shall  be  fixed  Avliicli  shall  not  exceed  those  now 
applicable  on  shipments  from  such  points  to  the  more  distant 
coast  terminals.  It  is  suggested  by  the  complainant  that  we 
bring  in  other  carriers  as  defendants,  so  that  the  entire  eastern 
territory  may  be  covered  by  our  order.  This  we  think  unneces- 
sary, assuming,  as  we  do,  that  the  conclusions  here  reached  as 
to  a  tlirough  route  from  the  east  to  the  west  will  be  adopted 
and  established  by  other  lines  similarly  situated. 

Construction  of  Nevada  Rates 

To  reach  a  clear  understanding  of  the  basis  upon  which  Nevada 
rates  in  general  are  now  fixed,  it  is  necessary  to  bear  primarily  m 
mind  the  fact  before  referred  to,  that  the  carriers  of  the  country 
have  united  in  establisliing  a  zone  2000  miles  in  width  from 
which  rates  are  practically  uniform  to  what  are  known  as 
"  coast  terminals."  There  are  152  of  these  coast  terminals, 
97  of  which  are  in  California.  They  are  pomts  more  or  less 
arbitrarily  established  by  the  carriers,  but  which  are  either  upon 
inlets  from  the  ocean  or  rivers  running  to  such  inlets,  or  are  but 
slightly  removed  from  such  water  points.  The  most  prominent 
coast  terminals  are  Seattle,  Tacoma,  Portland,  Sacramento,  San 
,Jose,  Stockton,  Oakland,  San  Francisco,  Los  Angeles,  and  San. 
Diego.  To  these  coast  terminals  are  extended  what  are  known  as 
"  terminal  rates  "  on  westbound  transcontinental  traffic.  These 
rates  apply  either  from  all  of  eastern  defined  territory  or  from 
separate  groups  therein.  The  shaded  portion  of  the  accompany- 
ing map  indicates  eastern  defined  territory  and  the  groups  into 


TKANSCONTmENTAL  FREIGHT  RATES  467 

which  it  is  divided.  These  groups  are  lettered  from  A  to  J.  A 
is  Hniited  to  New  York  City  piers,  and  has  to  do  only  with  ship- 
ments by  steamship  via  (iulf  ports ;  B  covers  New  England  ter- 
ritory ;  C,  New  York  territory  and  the  middle  states,  with  New 
York  City  as  the  principal  pomt ;  D,  Chicago  and  adjacent  terri- 
tory ;  E,  the  Mississippi  river,  with  St.  Louis  as  the  principal 
city ;  F,  the  Missouri  river ;  G,  Kansas ;  H,  Oklahoma ;  I, 
Texas ;  and  J,  Colorado,  with  Denver  as  its  central  point. 

Class  rates.  Coming,  then,  to  the  construction  of  the  Nevada 
class  rates,  we  find  that  the  carriers  have  employed  three  methods 
of  construction  during  the  past  two  years.  Prior  to  January  1, 
1909,  there  existed  a  body  of  what  were  known  as  intermediate 
class  rates  to  Reno  from  certain  designated  eastern  points.  These 
rates  were,  on  first  class  — 

From  Chicago-Milwaukee  common  points -13.90 

From  Mississippi  river  common  points 3.70 

From  Missouri  river  common  points 3.50 

From  Colorado  common  points 3.00 

An  alternative  clause  gave  Reno  the  right  to  the  combination 
rate  based  on  Sacramento  whenever  that  should  be  lower.  This 
indefinite  method  of  stating  rates  the  Commission  condenmed  in 
a  general  ruling.  The  tariffs  were  then  changed  so  as  to  cancel 
the  alternative  clause  and  the  intermediate  class  rates  and  thus 
to  make  all  Nevada  rates  base  on  Sacramento.  This  was  the  situ- 
ation when  the  case  was  heard.  Later,  however,  in  June  of  last 
year,  a  third  plan  was  adopted,  and  that  now  obtains,  viz.,  to 
divide  Nevada  into  two  zones  with  Humboldt  as  the  dividing 
point.  Points  west  of  Humboldt  take  the  Sacramento  combina- 
tion. Points  east  of  Humboldt  take  generally  tlie  Ogden  combi- 
nation. It  is  unnecessary  herein  to  trace  the  history  and  the 
effect  of  these  various  changes  in  the  method  of  rate  basing.  We 
shall  deal  with  the  rates  to  all  Nevada  points  as  joint  rates.  And 
inasmuch  as  rates  on  all  ten  classes  were  quoted  by  the  carriers' 
tariffs  from  all  eastern  defined  territory  to  coast  terminals  and 
therefore  V)y  coml)inuti()U  to  interior  points,  at  the  time  when  this 
proceeding  was  })rought,  we  shall  consider  tliat  our  jurisdiction 
extends  to  the;  installation  oH  such  rates  to  all  of  such  territory. 


•a>s 


L\\T1AVA\     IMv'or.l.KMS 


To  rtsoertaiii  tlu>  rale  u[hhi  a  sliipuu'iit  tioiii  New  York  to  Reno 
one  looks  iu  vain  lor  any  one  larilT  in  which  sneli  rate  is  to  be 
ionnil.  By  examination  of  the  taritt'  of  tlie  Transcontinental 
Freight  Bureau,  to  which  the  Southern  i'acilic  Company  is  a 
party,  this  note  is  discovered: 

h'(i/('g  to  intermediate  points 

Wluni  no  sjiccitic  rate  is  named  to  an  intennediate  ]if)int  shown  in  Trans- 
continental Freight  Bureau  Circular  No.  !(!-('  (1.  C.  C.  No.  864),  sujiple- 
nients  thereto,  or  reissues  thereof,  rate  to  sucli  an  intermediate  point  will 
be  made  by  adding  to  the  i-ate  shown  to  the  ])()int  designated  herein  as 
"Terminal,"  which  is  nearest  destination  of  shi[imeut,  tlie  local  rate  from 
nearest  terminal  i)oint  to  destination. 

Turnino-  to  Transcontinental  Frciolit  Bureau  Circuilar  No.  IG-C 
(the  issue  at  the  date  at  which  this  eomplaint  was  brought),  we 
Ihid  Reno  named  as  an  intermediate  pomt,  and  that  the  near- 
est terminal  to  Reno  is  Sacramento,  154  miles  west  of  Reno. 
We  find,  then,  by  returning  to  the  Transcontinental  Freight 
Bureau  west-bound  tariff,  the  rate  applicable  upon  the  shipment 
to  Sacramento.  Then,  having  ascertained  this  from  a  tariff  to 
which  all  of  the  carriers  from  New  York  to  Sacramento  are  parties, 
we  must  next  find  the  local  rate  from  Sacramento  to  the  destina- 
tion of  the  freight,  which  is  east  of  Sacramento.  This  local  rate, 
Sacramento  to  Reno,  we  find  in  a  tariff  to  which  the  Southern 
Pacific  Company  alone  is  a  party.  Thus  we  have,  tlirough  a 
maze  of  tariff's,  at  length  discovered  the  rate  from  New  York  to 
Reno,  which  is  made  up  of  a  joint  through  rate  to  Sacramento 
and  a  local  rate  of  the  Southern  Pacific  Company  alone  from 
Sacramento  back  to  Reno. 

The  all-rail  class  rates,  in  cents,  per  100  pounds  from  east- 
em  defined  territory  to  coast  terminals  were,  when  this  case  was 
brought,  as  follows : 


Classes 

1 

3 

3 

4 

5 

A 

B 

C 

n 

E 

Groups  B,  C,  D,  E,  F,  G,  H,  and  I 
Group  J  

$3.00 
3.00 

$2.60 
2.60 

$2.20 
2.00 

$1.90 
1.75 

$1.65 
1.60 

$1.60 
1.40 

$1.25 
1.20 

$1.00 
.95 

$1.00 
.85 

$0.95 
.80 

SAN        - 

FRANCISCO" 

SACRAMENTO" » 

-RENO< 

hUWOOTii  s; 


»•      5!      z 


I  m  ^  m  C3  C30 


ELKO 


S2 


OGDENQ"; 


'2r 


-  o  o 
o 
u>  CD  en  '^  c>>  fs>  C3 


rs>  O  1:^  u» 

_     _  Ol -^  CJ  ts»  C3  to  — 


o-^. 


^^ii/^  t^t^'^f/OAUA/  V/A     r"^ 


5       V- 


^S^ 


3 


TRANSCONTINENTAL  FREIGHT  RATES 


469 


An  examiiiatioii  of  present  tariffs  will  show  that  from  New 
England  and  New  York  territories  (Groups  B  and  C)  no  class 
rates  below  fourth  class  are  now  extended.  Prior  to  January  1, 
1909,  however,  and  at  the  time  this  complaint  was  brought,  rates 
were  given  for  the  full  10  classes  from  these  groups,  and  such 
rates  upon  the  $3  scale  are  now  given  to  coast  terminals  from 
Group  A,  the  freight  being  carried  from  the  New  York  City 
piers  to  New  Orleans  and  Galveston  by  ocean  carriers  and  thence 
by  rail.  It  will  also  be  seen  that  from  Group  J  slightly  lower 
rates  are  made  on  all  classes  below  second  class  than  are  made 
from  other  groups.  With  these  exceptions,  however,  the  rates 
are  uniform  throughout  the  whole  eastern  defined  territory  as  to 
classified  freight. 

The  local  rates  on  classes  from  Sacramento  to  Reno  are  as 
follows : 


Class    .... 

1 

2 

3 

4 

5 

A 

B 

C 

D 

E 

Rate     .... 

129 

112 

102 

87 

78 

78 

24 

23.5 

25.5 

25.5 

The  result  of  the  combination  on  Sacramento  is  therefore  to 
produce  the  following  rates  to  Reno : 

From  Groups  B,  C,  D,  E,  F,  G,  11,  and  I : 


Class    .... 

1 

2 

3 

4 

5 

A 

B 

C 

D 

E 

Rate     .... 

429 

373 

322 

277 

243 

238 

159 

133| 

125^ 

120^ 

From  Group  J : 

Cla.ss    .... 

1 

2 

3 

4 

5 

A 

B 

C 

D 

E 

Rate     .... 

429 

373 

302 

262 

238 

218 

154 

128^ 

im 

105^ 

Rates  to  points  east  of  Humboldt,  such  as  Winnemucca  and 
Elko,  under  the  present  method  of  making  rates  on  the  Ogden 
combination,  vary  as  tlie  rate  fi'om  point  of  origin  to  Ogden. 


■() 


K  \IL\VAV    riJOr.MOMS 


Till'  (.'ITt'ct  (if  this  cliaii^i-  in  nu'tliod  of  iiial\iii!^  rates  may  be 
illustrated  brielly  by  the  statement  that  the  lirst-elass  rate  to  Reno 
from  C'hieago  prior  to  .lanuary  1,  li)U9,  was  -to.UO,  whereas  it 
is  now  <J<4.29 ;  from  Missouri  river  $3.50,  and  now  <f4.29. 
To  Elko,  on  the  other  hand,  the  hrst-elass  rate  from  Chieago  is 
now  •"J4.27,  as  against  a  previous  rate  of  -14.72^,  when  the  rate 
based  on  Sacramento. 

For  many  years  the  elass  rates  to  interior  points,  sueh  as  Reno, 
were  no  higher  than  to  the  terminals.  On  April  11,  1893,  the 
practice  of  maintaining  lower  terminal  rates  was  instituted. 
The  first  line  of  figures  in  the  table  below  shows  the  Reno  rates 
when  this  case  was  brought;  the  second  line,  the  rates  hi  1892; 
and  the  tliiid  line,  the  difference,  or  the  amount  by  which  the 
rates  have  been  mcreased. 


To  Reno  from 

Classes 

1 

3 

3 

4 

5 

A 

B 

C 

D 

E 

Missouri  river  coninioii  jioints     .    . 
1892  rates 

429 
350 

373 
300 

322 
250 

277 
200 

243 
175 

238 
175 

159 
155 

133i 
125" 

125J 
110 

120J 
100 

Ditfereiice 

79 

73 

72 

77 

68 

63 

4 

H 

15J 

20J 

Mississippi  river  foiiiinoii  points 
1892  rates     . 

429 
370 

373 
320 

322 
260 

277 
2a5 

243 
180 

238 
182 

56 

159 
163 

133J 
130 

125J 
115 

120J 
105 

59 

53 

62 

72 

63 

3i 

lOJ 

15  i 

Chicago  coiimioii  points 

1892  rates 

429 
390 

373 
310 

322 
270 

277 
210 

243 
185 

238 
190 

159 
170 

133J 
135 

125J 
120 

120i 
110 

Difference 

39 

33 

52 

67 

58 

48 

5J 

lOi 

Commodity/  rates.  While  there  are  many  hundred  com- 
modity rates  extended  to  coast  terminals,  there  are  but  few 
given  to  intermediate  points.  On  the  following  articles  the 
commodity  rates  are  the  same  to  Utah  and  Nevada  points  as 
to  Pacific  coast  terminals  from  Groups  D,  E,  F,  G,  H,  I,  and 
J  of  eastern  defined  territory,  wliicli  include  all  pohits  from 
Chicago  west: 

Apples  ;  bananas  ;  beer,  in  wood  ;  bones ;  broom  corn  ;  butter, 
butterine,  oleomargarine,  eggs,  cheese,  and  dressed  poultry  ;  cars, 
street ;  barley,  corn,  rye,  oats,  and  speltz,  c.  1.  and  1,  c.  1. ;  bran 
and  shorts,  c.  1.  and  1.  c.  1, ;  brewer's  grits,  brewer's  meal,  corn 


TRANSCONTmENTAL   FREIGHT   RATES  471 

meal,  corn  chop  or  chop  feed,  chopped  corn,  cracked  corn,  and 
hominy ;  buckwheat,  c.  1.  and  1.  c.  1. ;  wheat,  c.  1.  and  1.  c.  1. ; 
cooperage,  cranberries ;  fertihzers,  n.  o.  s. ;  household  goods,  c.  1. 
and  1.  c.  1. ;  live  stock ;  machinery,  mining  ;  mineral-water  bottles, 
returning  ;  oil  cake  and  oil-cake  meal ;  onions  ;  onion  sets,  1.  c.  1. ; 
packing-house  products  ;  pmeapples  ;  plaster,  building  ;  poultry, 
alive  ;  railway  ecjuipment ;  and  staves  and  headings. 

As  to  all  but  two  or  three  of  these  commodities,  the  rates  are 
the  same  to  Reno  as  to  Sacramento  from  Chicago.  That  is  to 
say,  the  blanket  rate  made  from  all  eastern  defined  territory  to 
coast  terminals  on  these  commodities  is  applied  from  Chicago 
to  Reno.  There  are  a  few  other  commodities  upon  which  com- 
modity rates  are  given  to  Reno  which  are  somewhat  higher  than 
the  rates  from  Chicago  to  Sacramento,  viz.,  automobiles,  buggies, 
carriages,  wagons,  vehicles,  and  coal,  coke,  and  guano  from  cer- 
tain far  western  points.  From  an  examination  of  the  tariffs  it 
appears  that  the  transcontinental  commodity  rates  —  rates  from 
eastern  defined  territory  to  the  coast  terminals  —  are  at  the  pres- 
ent time  higher  than  they  were  ten  years  ago  by  a  very  consid- 
erable percentage  and  this  regardless  of  the  fact  that  the  base  of 
supplies  has  been  constantly  moving  westward,  thereby  narrowing 
the  distance  between  point  of  production  and  consumption. 

Volume  of  Nevada  Traffic 

Nevada  is  colloquially  known  as  the  "  Sage  Brush  State,"  and 
from  the  car  window  it  presents  the  spectacle  of  an  almost  unin- 
terrupted waste.  Railroad  men  speak  of  it  as  a  "  bridge "  — 
unproductive  territory  across  which  freight  must  be  carried  to 
reach  points  of  consumption.  The  figures  of  the  Southern  I'acific 
demonstrate,  however,  that  while  Nevada  traffic  may  at  one  time 
have  been  negligible  such  is  no  longer  the  case. 

Some  time  before  this  proceeding  was  In'ought  the  Southern 
Pacific  Company,  which  is  the  lessee  of  the  Central  Pacilic  run- 
ning from  Ogden  west  into  California,  brouglit  suit  in  the 
United  States  circuit  court  for  the  district  of  Nevada  attack- 
ing certain  rate  schedules  upon  state  traffic  established  by  the 


-172  i;.\ii.\VA\'  im:()1'.m:ms 

stale  i-ominissioii.  In  suppoil  of  its  case  tlii'  Southern  Pacific 
Company  lilcd  an  at"ti(la\il  wnxdc  hy  Mr.  ('.  I).  Soger,  auditor 
of  tlio  Southern  I'aeilie  Company,  showinn'  tlu'  eai'uings  of  tlie 
Central  Pacil'u-  on  business  wliolly  williin  the  staler  on  busi- 
ness passiuLi^  throuL;"h  the  state,  on  business  originating  in  and 
passing  out  of  the  state,  and  on  l)usiness  oi'iginating  outside 
and  having  its  destination  in  the  state,  for  the  fiscal  year 
ending  June  -^O,  1907.  Mr.  Seger  said  by  way  of  explaining 
his  figures : 

TIk'  frt'iqht  ciU'iiings  uciTiiiiig  to  uiul  iikuIc  l)y  said  Southern  Pacific 
Company  in  Nevada,  being  the  revenue  itself,  without  reference  to  its  dis- 
position under  any  lease,  agreement,  or  otherwise,  are  derived  for  the  said 
fiscal  year  1907  from  through  and  local  business,  understanding  by  local 
business  such  as  is  strictly  intrastate  in  character,  picked  up  and  laid  down 
within  the  limits  of  the  State  of  Nevada,  and  understanding  by  thnnigh 
business  such  as  is  interstate  in  character.  Further  differentiating,  said 
interstate  business  consists,  first,  of  business  originating  outside  aud  com- 
ing into  the  state ;  second,  of  business  originating  in  and  passing  out  of 
the  state  ;  and,  third,  of  business  originating  outside  the  state,  having  desti- 
nation l)eyond  the  state,  and,  in  relation  to  the  state  itself,  simply  passing 
through  the  state.  The  freight  earnings  for  said  fiscal  year,  and  pertaining 
to  the  said  business  as  above  classified,  are  set  forth  under  the  appropriate 
heads,  and  are,  in  fact,  as  follows : 


Revende 

Percent- 
age OF 
Total 

Intrastate 

Originating  outside  and  coiniii.i;  into  the  state      .     . 
Originating  in  and  passing  out  of  the  state       .     .     . 

.fl  59, 791, 40 

1,083,087.09 

831,802.90 

0.02 
.20 
.10 

Passing  tlirougli  the  state 

2,075,282.05 
6,578,282.28 

.32 
.68 

Sum  total 

$8,253,564.33 

1  00 

Surprising  as  these  figures  are  they  apparently  do  not  fully 
set  forth  the  extent  of  Nevada  business  at  this  time,  as  is  shown 
by  an  exhibit  filed  by  the  Southern  Pacific  Company  in  the  pres- 
ent case,  giving  the  business  west  of  Ogden  for  the  single  month 
of  February,  1909,  which  may  be  epitomized  thus : 


TKANSCOXTIXEXTAL   FREIGHT   RATES 


473 


Revenue 

Percent- 
age OF 
Total 

Tonnage 

Percent- 
age OF 
Total 

Intrastate 

is29  001  00 

0.03 
.38 

4,715 
64,367 

0.04 
.50 

Into    and    out    of    Nevada    and 
Utah  west  of  Ogdeu      .     .     . 

314,379.05 

Passing  through  the  state  .     .     . 

343,380.65 
495,128.37 

.41 
.59 

69,182 
60,271 

.54 
.46 

Total  for  month  of  February,  1909 

§838,509.02 

1.00 

130,453 

1.00 

Another  most  interesting  showing  is  made  by  the  Seger  affi- 
davit as  to  passenger  business  on  the  Southern  Pacific  in  the 
State  of  Nevada  for  the  year  1907,  the  figures  given  being  these  : 


Percent- 
age 


Intrastate 

Originating  outside  and  coming  into  the  state 
Originating  in  and  passing  out  of  the  state 


Passing  through  the  state 
Sum  total    .... 


$286,235.65 
357,511.55 
267,582.85 


1,962,915.33 


10 


13 


22 


$2,874,245.38 


-  32 

68 

100 


The  statement  for  the  month  of  Februar}',  1909,  referred  to 
above,  sets  forth  very  clearly  not  only  the  volume  of  business 
going  into  and  out  of  Nevada  and  the  earnings  of  the  Southern 
Pacific  thereon,  but  also  gives  a  specific  analysis  of  the  sources 
of  the  traffic,  showing  the  volume  which  comes  into  Nevada  fi'om 
the  east  and  that  which  comes  from  California.  Under  "  Ques- 
tion 2  "  below  will  be  found  a  statement  of  the  freight  received 
at  Nevada  and  Utah  points  from  points  w^'st  of  Calvada,  wliicli  is 
a  station  directly  on  the  California-Nevada  state  line.  This  table, 
liowever,  should  not  mislead ;  a  considerable  percentage  of  the 
traffic  from  California  is  traffic  of  eastern  origin  reshippcd  from 
California  to  Nevada.  The  table  also  includes  coal  and  other  com- 
modities of  very  large  tonnage  (approximately  one-half  of  the  total 
in  weight)  coming  from  points  west  of  eastern  defined  territory. 


[~\ 


\l\\\.\\  W    rKiM'.IJvMS 


Total 

'ri-.l!l{lTt)KlAl-  INIOVKMKN  r 

Tons 

Southern 
raciflc  Earn- 
ings 

Gross  total   tonnage   and   earnings   of   the   Soutlu-ru 
Pacific  Co.  for  the  month  of  February,  1909     .     . 

913,302 

§3,422,529.00 

Question  No.  1 

37,886 

320,220.55 
174,907.82 

Fi'eiglit  via  Ogdeii  from  California 

22,385 

60,271 

§495,128.37 

Question  No.  2 
Freight  via  Ogden  to  points  in  Nevada  and  Utali     .     . 
Freight   received   at   Nevada   and   Utah  points   from 

points  west  of  Calvada 

Freight  via  Ogden  from  points  in  Nevada  and  Utah 
Freight  forwarded  from  points  in  Nevada  and  Utah  to 

17,485 

16,823 

18,381 

11,678 

66,284.88 

144,965.00 
33,462.77 

69,667.00 

64,367 

$314,379.65 

Question  No.  3A 

Freight  received    in   California,   San  Francisco    and 
north,  from  all  points  in  California,  including  inter- 
change with  connecting  lines  in  California     .     .     . 

189,827 

$365,168.00 

Question  No.  SB 

Freight  picked  up  and  laid  down  in  Nevada  and  Utah 
and  freight  moving  between  Nevada  and  Utah  — 

Nevada  to  Nevada 

Utah  to  Utah 

4,046 

144 

499 

26 

21,839.00 
948.00 

Utah  to  Nevada 

5,122.00 

Nevada  to  Utah 

1,092.00 

4,715 

$29,001.00 

There  was  a  time,  doubtless,  when  Nevada  traffic,  save 
to  tlie  mines  on  its  westernmost  border,  was  but  trifling.  At 
present,  however,  it  has  a  traffic,  both  freight  and  passenger, 
which  is  far  too  considerable  to  be  overlooked  under  the  rule 
de  minimis.  And  it  is  to  be  remembered  that  the  figures  given 
apply  to  but  one  road,  whereas  a  second  is  in  operation  across 
the  state  to  the  south,  and  a  tliird  is  beginning  operations  on 
the  north. 


TRAXSCONTIXENTAL   FREIGHT  RATES  475 

Sources  of  Eastern  Traffic 

It  is  interesting  in  this  connection  to  regard  the  point  of  origm 
of  this  eastern  freight.  The  raih'oad  commission  of  Neva(Ux  had 
access  to  the  billmg  of  all  shipments  reaching  Reno,  and  from 
these  compiled  a  series  of  statements  which  appear  to  sliow  that 
the  great  body  of  Nevada  traffic  which  comes  directly  from  the 
east  via  Ogden  originates  west  of  the  Indiana-Illinois  state  line. 

From  one  exhibit  it  appears  that  of  the  1,063,687  pounds  of 
less-than-carload  shipments  originating  in  eastern  defined  terri- 
tory and  delivered  at  Reno  during  the  months  of  January,  Feb- 
ruary, March,  and  April,  1908,  only  10  per  cent  originated  at 
the  Atlantic  coast  cities  of  New  York,  Boston,  and  Philadelphia, 
and  only  25  per  cent  in  Connecticut,  District  of  Columbia,  Maine, 
Maryland,  Massachusetts,  New  Jersey,  New  York,  Pennsylvania, 
and  Virgmia.  This  exhibit  further  shows  that  on  the  traffic 
moved  the  charges  were  $32,719.30 ;  that  if  terminal  rates  had 
been  applied  charges  would  have  been  $21,956.24;  and  that 
the  difference  is  $10,748.07.  In  other  words,  the  charges  on 
these  shipments  to  Reno  were  48.3  per  cent  higher  than  would 
have  been  the  charges  on  the  same  shipments  had  they  been  car- 
ried over  the  mountains  to  Sacramento. 

Another  exhibit  shows  that  of  21,000,000  pounds  of  carload 
freight,  earning  $278,000,  moved  from  eastern  defined  territory 
into  Reno,  9,500,000  pounds,  earning  $120,000,  moved  in  at  rates 
no  higher  than  terminals.  It  further  shows  that  only  4,500,000 
pounds  of  the  21,000,000  originated  east  of  Chicago.  This  ex- 
hibit shows,  aside  from  the  products  carried  to  Reno  at  terminal 
rates,  that  the  charges  were,  for  the  year  1908,  $157,824.94; 
that  the  terminal  charge  would  have  been  $99,679.90 ;  and  the 
difference,  $58,524.40.  In  other  words,  the  charges  on  carload 
shipments  to  Reno  were  59  per  cent  higher  than  the  charges  on 
the  same  shipments  would  have  been  had  they  been  carried  to 
Sacramento. 

Commissioner  Thurtcll  estimated  from  the  iigurcs  at  his 
hand  that  the  total  receipts  under  present  rates  upon  business 
brought  int(^  Reno  via  Ogdcii   for  tlie  year  1908  amounted  to 


47(>  TJATT.WAV   riJOr.LEMS 

$454,348.()0  and  iiiulor  teiiniiial  rates  the  revenue  would  have 
been  ti'3l)3,8()5.23,  a  reduction  of  •i}!00,478.4(5.  The  statement 
also  shows  that  the  revenue  to  the  Southern  Paeiiic  from  this 
business  was  !}!2()S,r)lG.40  and  would  have  been  under  termi- 
nal rates  1178,087.94,  a  reduction  of  190,478.40,  or  about 
33  per  cent.  Expressed  in  revenue  the  Southern  Pacific  on 
the  liaul  from  Ogden  to  Reno  earned  $11.51  per  ton,  while  if 
terminal  rates  had  been  charged  its  earnino's  would  have  been 
$7.03  per  ton. 

On  the  whole,  the  figures  given  in  this  case,  which  are  the 
most  authoritative  thus  far  presented  to  the  Commission  with 
reference  to  the  sources  of  westbound  transcontinental  trafific, 
indicate  that  less  than  25  per  cent  of  the  traffic  into  Reno  from 
the  east  originates  east  of  Chicago,  while  75  per  cent  originates 
jjetween  Chicago  and  Denver.  In  other  words,  tlie  needs  of  the 
people  on  the  west  coast  may  be  and  are  in  great  part  supplied 
from  sources  nearer  home  than  the  Atlantic  seaboard. 

The  manufacturing  center  of  the  country  has  moved  westward 
and  rates  from  the  Atlantic,  seaboard  that  were  once  necessary 
are  now  almost  unused.  It  may  be  historically  the  fact,  as  the 
carriers  assert,  that  the  transcontinental  blanket  rates  given  to 
the  Pacific  coast  cities  were  put  in  to  meet  water  competition 
from  the  Atlantic  coast  points,  and  that  these  rates  were  extended 
westward  from  the  Atlantic  as  matter  of  grace  to  western  manu- 
facturers and  producers ;  to-day,  however,  it  might  well  be  said 
that  this  blanket  is  extended  not  westward,  but  eastward,  so  as 
to  give  the  eastern  manufacturer  or  jobber  some  opportunity  to 
reach  the  far  western  markets. 

Water  Competition 

As  we  have  seen,  the  rates  are  higher  on  almost  all  commodi- 
ties from  eastern  producing  points  to  Reno  than  on  these  same 
commodities  to  Sacramento,  the  more  distant  point.  Without 
explanation  this  constitutes  a  violation  of  the  long-and-short-haul 
clause  of  the  act.  The  carriers  justify  the  lower  rates  to  the  more 
distant  point  upon  the  ground  of  water  competition.    They  say 


teansco:ntinental  freight  rates        477 

that  the  rates  charged  to  Reno  and  other  Nevada  cities  are 
reasonable  in  themselves  measured  by  the  cost  of  the  service 
to  the  carrier  or  the  value  of  the  service  to  the  shipper,  and 
that  rates  to  the  coast  cities  measured  by  these  standards  are 
too  low  to  be  considered  reasonable  and  would  not  be  in  effect 
but  fur  the  force  of  water  competition.  The  Nevada  commis- 
sion, on  the  other  hand,  contends  that  while  some  commerce 
does  move  from  the  Atlantic  seaboard  by  water,  the  volume  is 
so  small  that  it  is  not  influential  in  determining  the  present 
rate  to  the  coast  terminals ;  that  the  coast  rate  itself  is  reason- 
able, and  therefore  that  the  application  of  a  higher  rate  to  an 
intermediate  point  can  not  be  justified.  The  making  of  higher 
intermediate  rates,  they  strongly  urge,  is  a  matter  of  railway 
policy  and  not  of  railway  necessity,  m  that  the  railways  wish  to 
develop  the  coast  cities  as  jobbing  centers  to  the  exclusion  of 
interior  points ;  that  the  revenues  of  the  carriers  would  not 
be  seriously  unpaired  were  this  policy  abrogated  and  as  low 
rates  given  to  the  intermountain  country  as  are  now  extended 
to  the  coast  cities. 

It  is  no  reflection  upon  the  traffic  manager  of  a  railroad  to 
say  that  he  bases  his  rates  upon  some  line  of  policy.  He  deals 
directly,  and  in  most  cases  exclusively,  with  the  producer  or  the 
jobber.  His  concern  is  to  keep  these  patrons  satisfied  and  at  the 
same  time  bring  to  his  railroad  the  greatest  possible  revenue. 
This  is  what  he  means  by  saying  that  he  charges  what  the  traffic 
will  bear.  He  regards  as  reasonable  whatever  rate  will  make  for 
the  best  interest  of  his  road,  and  in  determining  this  he  adopts  a 
line  of  policy  wliich  affects  either  favorably  or  unfavorably  the 
industrial  growth  of  the  communities  which  the  carrier  serves. 
The  restrictions  of  the  act  to  regulate  commerce  are  govern- 
mental limitations  placed  upon  the  unlimited  and  arbitrary  dis- 
cretion of  traffic  officials.  While  the  latter  may  adopt  policies 
which  they  regard  as  most  favorable  to  their  roads,  such  poli- 
cies must  be  restricted  by  the  inhibitions  of  tlie  law  Avhich 
this  Commission  must  enforce.  The  policy  of  making  Reno 
rates  base  upon  those  extended  to  tlie  more  distant  pomt  may 
not  be  justiiied  upon   the  ground   that   J{cno   traffic  will  bear 


478  i;ail\\a\'  I'Koiu.ems 

that  ini{)osition,  but  may  be  jnstilied  by  coiubtions  obtaining 
at  the  molt'  distant  point  which  the  earrier  may  meet  without 
ott'ense   to  any    provision   of  the  act. 

And  this  brings  direetly  to  our  consideration  the  question  of 
water  eompetition  at  Saeramenlo  and  otlier  eoast  terminals.  It 
is,  ot"  eourse,  a  physieal  fact  that  commerce  may  be  carried  by 
water  from  the  eastern  seaboard  to  the  Pacific  coast.  It  is  ad- 
mitted by  all,  and  substantiated  by  the  evidence  in  this  case,  that 
some  commerce  does  actually  so  move.  An  estimate  has  been 
made  by  complainant  that  approximately  3,000,000  tons  of  trans- 
continental traific  reaches  the  coast  terminals  during  each  year 
by  rail,  while  the  highest  figure  given  as  the  volume  of  traffic 
reaching  those  points  by  water  from  the  eastern  seaboard  is 
under  10  per  cent  of  the  rail  movement.  The  fact,  however,  that 
it  moves  in  large  or  small  quantities  does  not  of  itself  sustain 
the  contention  that  the  present  rates  from  eastern  defined  terri- 
tory to  coast  terminals  are  so  low  as  not  to  make  a  reasonable 
return  to  the  carrier  for  the  service  performed.  A  movement  of 
traffic  may  be  affected  by  water  competition  at  a  more  distant 
point  and  yet  a  rate  made  up  of  the  combination  of  the  rate  by 
water  plus  the  rate  back  be  unreasonable  and  unjust.  Nevada, 
Utah,  Arizona,  and  Idaho  are  nearer  to  the  Pacific  coast  than  to 
the  Atlantic,  but  this  does  not  of  itself  justify  charging  them 
overland  rail  rates  which  will  give  them  none  of  the  advantages 
arising  out  of  their  shorter  distance  to  an  eastern  base  of  supplies. 
Nor  does  it  follow  that  a  rate  to  a  point  on  the  seaboard  is  lower 
than  would  be  justified  if  that  point  were  not  so  situated.  In 
short,  it  is  not  sufficient  to  state  that  the  terminal  points  are  sit- 
uated on  the  water  to  excuse  the  imposition  of  higher  rates  at 
intermediate  jKjints. 

There  has  been  little  ditficulty  experienced  from  time  to  time 
by  the  rail  carriers  in  raising  rates  to  the  Pacific  coast ;  the 
only  live  water  competitor  on  the  Pacific  to-day  is  a  line  which 
bases  its  rates  on  the  rail  tariffs,  and  the  rates  of  both  the 
rail  and  the  water  lines  change  simultaneously.  Ways  can  be 
found,  and  have  been  found,  by  which  the  presence  of  the 
ocean  as  a  controlling,  or  even  greatly  meddlesome,  factor  in 


TRANSCONTINENTAL  FREIGHT  RATES  479 

the  fixing  of  railroad  rates  can  be  nullified.  There  is  no  doubt 
but  that  rail  rates  have  been  mfluenced  at  times  to  all  the 
Pacific  ports  by  water  carriers,  and  of  course  there  is  the  pos- 
sibility that  at  any  time  this  water  competition  may  become 
seriously  aggressive  and  potent.  The  United  States  is  not  a 
maritime  nation  at  present,  and  her  great  coast  line  on  the 
Pacific  side  is  served  in  great  part  by  such  water  carriers  as 
the  railroads  permit  to  live. 

While,  tlierefore,  physical  conditions  at  the  coast  are  dissimilar 
to  those  at  interior  pohits  the  rates  to  the  coast  are  not  neces- 
sarily less  than  in  fairness  the  traffic  should  carry.  The  water 
carriers  between  the  Atlantic  and  the  Pacific  coasts  at  present 
charge  rates  from  25  to  40  per  cent  less  than  their  railroad  rivals. 
To  get  this  busmess  the  water  carrier  at  the  eastern  port  reaches 
mland  and  absorbs  a  rail  rate  of  20  cents  upon  commodities 
which  carry  more  than  a  60-cent  water  rate  to  the  Pacific  coast. 
The  American-Hawaiian  Steamship  Company  then  transports 
the  freight  by  water  to  the  Tehuantepec  road,  where  it  is  trans- 
shipped across  the  Isthmus,  and  being  loaded  again  is  carried  to 
a  Pacific  coast  port  and  there  reshipped  either  by  rail  or  water 
to  certain  designated  points  of  destination  inland  from  the  port. 
In  such  a  movement  there  is  involved  a  rail  haul  of  400  or 
500  miles,  at  least  six,  and  possil)ly  more,  separate  handlings  of 
each  parcel  of  freight,  and  a  liaul  by  water  of  fully  5000  miles. 
Freight  moving  via  Panama  is  subject  to  even  heavier  conditions. 
It  is  insisted  by  the  Nevada  commission  that  water  competition 
of  this  character  is  not  sufficiently  aggressive  or  formidable  to 
compel  the  railroads  to  make  any  other  rates  to  tlie  coast  termi- 
nals than  those  which  from  reasons  of  policy  they  are  at  present 
making.  The  suggestion  is  not  without  pertinence  that  if  four 
different  transportation  services,  three  by  rail  and  two  by  water, 
involving  at  least  six  handlings  of  the  freiglit  and  a  total  haul 
of  5500  miles,  can  Ijc  furnished  profitably  at  from  60  to  75 
per  cent  of  the  rai»l  rate,  the  compensation  to  the  rail  carrier 
for  an  all-rail  haul  of  2500  miles,  with  no  handling  and  but 
two  terminal  charges,  should  produce  ample  revenue  to  the 
rail  carrier. 


{SO  KAII.W  \^     TKOIM^KMS 

TluM't'  arc  many  interest  in^-  (lc\  flopnicnls  in  tliis  and  other 
transi'ontini'iual  cases  touching  Uiis  mailer  of  competition  by 
watiT.  l'\)r  instance,  the  lowest  rate  diH's  not  in  all  cases  a[)[)ly 
to  and  liiun  the  seacoast  points.  Tliei-c  are  many  eoinmodities 
n[)on  whit'h  tlu'  rates  from  Chicago  and  Kansas  City  to  Sacra- 
mentt)  and  San  Francisco  are  less  than  they  are  from  New  York. 
And  yet  it  is  said  to  bt'  the  competition  from  New  York  that 
produces  the  low  rate.  In  no  case  is  the  rail  rate  from  New 
York  less  than  is  the  rate  from  other  portions  of  eastern  defined 
territory,  while  of  course  in  all  cases  New  York  is  nearer  the 
source  of  the  competing  force,  the  ocean.  This  is  accounted 
for  by  the  carriers  on  the  ground  that  by  taking  the  same,  or 
a  lower,  rate  from  the  interior  points  to  the  coast  terminals 
the  rail  carrier  avoids  the  longer  rail  haul,  the  points  of 
origm  and  destination  being  nearer  together.  This  is  an  appli- 
cation of  what  the  carriers  term  "  market  competition,"  but 
it  is  not  a  strong  argument  to  sustain  the  theory  of  water 
competition. 

As  usually  applied  by  carriers  market  competition  results  in 
the  hauling  of  commodities  produced  at  places  distant  from  the 
point  of  consumption  to  compete  with  the  same  commodities 
from  points  nearer  to  the  point  of  consumption.  In  this  case, 
however,  market  competition  is  said  to  be  the  controlling  factor 
which  justifies  a  rate  from  an  interior  point  less  distant  from 
destination.  Thus  we  have  a  13  rate  from  New  York  to  Sacra- 
mento to  meet  water  competition,  and  a  $3  rate  from  Kansas 
City  to  meet  market  competition.  We  also  have  a  $4.29 
rate  from  Kansas  City  and  from  New  York,  to  Reno,  as  a 
reasonable  rate  because  of  water  competition  from  New  York 
to  Sacramento. 

We  do  not  regard  the  divisions  of  rates  as  in  any  wise  conclu- 
sive as  to  the  reasonableness  of  rates  between  certain  points,  but 
such  divisions  are  sometimes  of  significance.  In  the  present  case 
we  find  that  if  100  pounds  of  freight  is  shipped  from  Boston,  or 
New  York,  or  Chicago,  or  St.  Louis,  or  Omaha  to  Sacramento  on 
the  §3  rate,  and  another  100  pounds  of  the  same  kind  of  freight 
is  sliipped  from  the  same  points  to  Reno  on  the  same  day,  the 


TRANSCONTINENTAL   FREIGHT  RATES 


481 


carriers  east  of  Ogden  receive  precisely  the  same  earnings  upon 
both  shipments ;  but  the  Southern  Pacific,  west  of  Ogden,  re- 
ceives far  more  upon  the  Reno  shipment  than  on  the  Sacramento 
shipment.    This  is  ilhistrated  in  the  following  table : 


Earnings 

Fkom  — 

To  — 

Rate 

Earnings 

EAST  OP 

Ogden 

OF  Southern 

Pacific 

Company 

(WE. ST  of 

Ogden) 

Cents 

Cents 

Cents 

Group  B,  Boston 

I  Sacramento 
1  Keno  .     .     . 

300 
429 

2n.3 
211.3 

88.7 
217.7 

Group  C,  New  York 

(  Sacramento 
( Keno  .     .     . 

300 
429 

211.3 
211.3 

88.7 
217.7 

Group  D,  including  Chicago,  etc.  .     .     . 

(  Sacramento 
1  Reno  .     .     . 

300 
429 

181.9 
181.0 

118.1 
248.0 

Group  E,  including  Mississippi  river     . 

(  Sacramento 
1  Reno  .     .     . 

300 
429 

174.5 
174.5 

125.5 
254.5 

Group  F,  including  ^Missouri  river     .     . 

1  Sacramento 
( Reno  .     .     . 

300 
429 

159.3 
159.3 

140.7 
269.7 

Neither  at  the  hearings  nor  in  the  argument  did  the  carriers 
east  of  Ogden  contend  that  their  divisions  of  these  rates  were 
unreasonable.  The  Soutliern  Pacific,  however,  the  carrier  which 
makes  the  last  700  miles  of  a  3100-mile  haul,  strenuously  insists 
that  its  rates  to  the  more  distant  points  are  compelled  by  water 
competition  for  the  purpose  f)f  defending  higher  rates  to  inter- 
mediate points  ;  while  the  carriers  performing  2400  miles  of  that 
service  appear  to  regard  the  rate  as  entirely  reasonable.  The  line 
from  New  York  to  Sacramento  and  Reno  constitutes  a  tlirougli 
route  and  in  law  the  carriers  engaging  therein  constitute!  one  line. 
If  the  Sacramento  rate  is  less  than  a  reasonable  rate  and  the  re- 
sult of  competition  tlien  it  would  seem  fair  to  assume  that  all 
of  the  carriers  engaging  in  the  transportation  so  consider  it  and 
would  accordingly  demand  a  lesser  division  tlian  the  division 
they  would  be  justified  in  requiring  out  of  the  liiglicr  rate  to 
the  intermediate  point.  The  fact  remains,  however,  that  for  tlie 
2400-mile  haul  fiom  New  York  to  Ogden  the  New  York  Cen- 
tral, the  Lake  Shore,  the  North  \Vestern,  and  the  Union  Pacific 
secure  the  same  revenue  out  of  the  $3  rate  to  Sacraniciilo  ihat 


4Sli 


i;atl\vav  iMj()r.T.E:\is 


they  do  out  of  tlu>  84.29  rate  to  Reiu).    Tliis  is  crraphically  illus- 
trated by  tlu'  I'ollowing  diagram  showing  the  division  of  the  rate: 


West  of  Ogden 

(Soutlierii  racitic) 


Reno 


o 
o 

Miles 


East  of  Ogden 

(Lines  Oyden  to  New  York) 


2950 

Reno 

1  542 

2408 

Sacramento  1 

696 

New  York 


3104 


Division  of  first-class  rate  in  cents 
429 

New  York 


Keno  217.7 


Sacramento  I  88.7 


211.3 


300 


Rate  per  ton  per  mile  in  mills 

I 
29 

New  York 


80 


Sacramento  I      25.5 


17.5 


19.3 


Productive  Freight  Territory 

We  have  gone  extensively  into  an  investigation  of  the  condi- 
tions surrounding  this  traffic  and  in  anywise  governing  the  basis 
upon  which  the  rates  to  Nevada  from  the  east  should  be  governed. 
What  has  been  said  herein  gives  little  more  than  a  suggestion  of 
the  extent  of  the  inquiry  winch  has  been  made.  We  have,  for 
instance,  liad  reports  made  upon  the  financial  condition  of  the 
carriers  involved,  and  their  ability  to  meet  any  reduction  which 
the  Commission  might  direct  without  serious  impairment  of  their 
revenues,  an  interesting  fact  in  this  connection  behig  this:  During 


TRANSCONTINENTAL   FREIGHT  RATES  483 

the  past  two  years  the  operating  revenues  of  the  Southern  Pacific 
Company's  Pacific  system  have  increased  $8,000,000  while  its 
operating  expenses  have  decreased  $5,000,000,  thus  producing 
an  increased  operating  income  of  over  $12,000,000,  or  a  net 
increase  of  about  $2000  per  mile  of  road. 

There  appears  in  the  record  a  compilation  from  the  statistics 
of  this  Commission  for  the  years  1898-1907  in  which  it  is  shown 
that  in  these  ten  years  the  carriers  in  the  Pacific  coast  territory 
doubled  their  freight  tonnage,  which  rose  from  18,000,000  to 
35,000,000  tons ;  almost  doubled  their  gross  revenue ;  their  re- 
ceipts per  mile  increased  over  70  per  cent ;  their  receipts  per  ton 
per  mile  increased  from  1,07  to  1.25,  or  about  20  per  cent ;  while 
the  relation  of  expenses  to  earnhigs  remained  practically  constant 
at  62.50  per  cent.  These  figures  are  for  all  the  roads  in  the 
Pacific  territory.  But  if  we  take  the  Central  Pacific  alone  we 
find  it  third  in  the  list  of  Pacific  coast  roads  in  tons  carried  and 
the  highest  of  all  in  freight  earnings  per  mile  ($13,453  per  mile 
in  1907).  While  it  is  one  of  three  railroads  ui  the  West  carrying 
over  a  million  tons  of  freight  per  mile  of  road  —  the  average  for 
the  United  States  —  the  earnings  of  the  Central  Pacific  per  mile 
are  65  per  cent  greater  than  the  average  for  tlie  United  States 
and  100  per  cent  greater  than  the  average  of  the  roads  west  of 

Chicago. 

Conclusions 

The  time  has  come,  in  our  opinion,  when  the  carriers  west  of 
the  Rocky  Mountains  must  treat  tlie  intermouiitain  country  upon 
a  different  basis  from  that  which  has  hitherto  obtained. 

Nevada  asks  that  she  be  given  rates  as  low  as  tliose  given  to 
Sacramento.  The  full  extent  of  this  petition  can  not  be  granted. 
In  making  rates  to  Reno  from  a  territory  broader  tlian  the  whole 
of  continental  Europe  we  have  necessarily  given  consideration  to 
existing  rates  to  other  intermediate  points  and  to  points  upon 
the  Pacific;. 

We  are  of  opinion  tluit  the  class  rates  to  Reno,  Winnemucca, 
and  Elko,  and  otlici'  points  in  Nevada  upon  the  main  line  of  the 
Southern  Pacific  Company,  from  stations  on  tlie  lines  of  the  de- 
fendants between  New  York  and   D(;nver  and  other  Colorado 


IS} 


i;An,\v.u-  iMjor.LKMS 


iHtniinoii  points  aw  uiircasoiialjlc  and  nnjnst  and  tliat  for  the 
tutuiv  no  hiij^lior  rati's  than  those  svi  I'orth  hrlow  should  be 
charijjt'd  to  Rrno  and  pohits  east  thereof  to,  but  not  including, 
W'iniu'inncca: 


B         C         I>        K 


Denver    and    other    points    in 
(.troup  J" 

Grand   Island  and  other  points 
in  Group  H" 

Omaha    and    otlier    jioiiits    in 
(Jroup  F" 

Clinton    and    other    points    in 
Group  E" 

Chicago   and  other  points   in 
Grt)up  D" 

Toledo   an<l   other  Cincinnati- 
Detroit  common  points fc  .     .     . 

Buffalo   aiul   other   Pittshurg- 
Butfalo  common  points  6  .     .     . 

New  York  and  common  points  6  . 


52.10 
2.30 


2.50 
2.80 
2.90 
3.05 


3.20 
3.50 


,$1.82 

2.00 

2.17 

2.42 

2.51 

2.63 

2.76 
3.01 


$1.54 
1.68 

1.&3 

2.03 

2.09 

2.19 

2.29 
2.49 


$1.33 

1.45 

1.5S 

1.71 

1.75 

1.81 

1.87 
2.00 


$1.12 

1.22 

1.33 

1.43 

1.47 

1.52 

1.57 
1.67 


$1.12 

1.22 

1.3;! 

1.46 

1.50 

1.56 

1.62 
1.75 


$0.87 

.96 

1.04 

1.14 

1.18 

1.23 

1.28 
1.38 


$0.70 

.76 

.83 

.91 

.94 

.98 

1.03 
1.11 


$0.66 
.73 
.79 

.86 

.89 

.92 

.96 
1.03 


$0.60 

.65 

.71 

.78 

.80 

.83 

.86 
.93 


"  As  designated  in  Transcontinental  Freight  Bureau  Westbound  Tariff  1-K,  I.C.C.  No.  920. 
6  As  designated  in  Nor.  Pac.  No.  23,500,  I.C.C.  No.  3295. 

And  that  for  the  future  no  higher  rates  than  those  set  forth 
below  should  be  charged  to  Winnemucca  and  points  east  thereof 
to  the  Kevada-Utah  state  line: 


Classes 

1 

3 

3 

4 

5 

A 

B 

C 

D 

E 

Denver    and   other    points    in 
Group  J" 

Grand   Island  and  other  points 
in  Group  G" 

Omaha    and    other    points    in 
Group  F" 

Clinton    and   other    points    in 

$2.00 
2.19 
2.38 
2.66 

$1.72 

1.90 

2.06 

2.30 

2.,38 

2.50 

2.62 
2.86 

$1.46 

1.60 

1.74 

1.93 

1.99 

2.08 

2.18 
2.37 

$1.26 

1.38 

1.50 

1.62 

1.66 

1.72 

1.78 
1.90 

$1.06 

1.16 

1.26 

1.36 

1.40 

1.44 

1.49 
1..59 

$1.06 

1.16 

1.26 

1.39 

1.43 

1.48 

1.44 
1.66 

$0.83 

.91 

.99 

1.08 

1.07 

1.17 

1.22 
1.31 

$0.67 

.79 

.86 

.89 

.93 

.98 
1.05 

$0.63 
.0!) 

.82 

.&5 

.87 

.91 
.98 

$057 
.62 
.67 
.74 

Chicago   and   other   points   in 
Group  D" 

Toledo  and  other  Cincinnati- 
Detroit  common  points 6  .    .    . 

Buffalo   and   other   Pittsburg- 
Buffalo  common  pointsft .     .     . 

New  York  and  common  pointsfi  . 

2.75 

2.90 

3.04 
3.a3 

.76 

.79 

.82 
.88 

"As  designated  in  Transcontinental  Freight  Bure: 
6  As  designated  in  Nor.  Pac.  No.  23,500,  I.C.C.  No. 


in  Westbound  Tariff  1-K,  I.C.C.  No.  920. 
3295. 


TRANSCONTINENTAL   FREIGHT  RATES  485 

In  directing  the  carriers  to  establish  these  class  rates  we  have 
taken  into  consideration  the  fact  that  the  general  policy  of  the 
carriers  is  to  make  commodity  rates  somewhat  lower  than  class 
rates  on  commodities,  the  movement  of  which  is  regarded  as  neces- 
sary to  the  development  of  mercantile  interests  and  industries. 
There  are  at  present,  as  we  have  seen,  a  considerable  number  of 
such  commodity  rates  into  Reno,  but  these  are  entirely  insufficient 
to  meet  the  needs  of  Nevada  if  she  is  to  become  in  any  way  an 
mdependent  business  community.  There  is  no  foundation  iii  the 
record  in  this  case  for  the  establishment  of  such  commodity  rates. 
The  theory  upon  which  the  case  was  presented  eliminated  all 
other  considerations  excepting  the  claim  that  all  rates  extended 
to  Sacramento  were  reasonable  as  to  Reno  and  other  Nevada 
points.  The  Nevada  petition  was  tantamount  to  a  request  that 
under  our  legal  authority  to  estaljlish  reasonable  rates  we  should 
fix  the  same  rate  from  Denver  as  from  Boston.  We  do  not  so 
construe  our  authority  as  to  permit  tliis  ( 'ommission  to  make  rates 
upon  such  a  basis.  Without  doubt  the  commodity  rates  made  to 
the  coast  termmals  are  reasonable  from  a  great  portion  of  eastern 
defined  territory,  but  a  governmental  authority  may  not  exercise 
the  latitude  in  fixino;  a  rate  blanket  which  the  carriers  themselves 
have  here  exercised. 

In  the  Sfohane  case,  19  I.  C.  C.  Rep.  162,  some  600  commodity 
rates  had  been  established  voluntarily  by  the  carriers,  and  the 
petition  in  that  case  was  for  the  reduction  of  those  rates  to  a 
reasonable  figure.  The  carriers  had  made  a  special  series  of  zones 
across  the  continent  to  meet  the  exigencies  of  the  Spokane  situa- 
tion. In  the  case  before  us,  however,  no  such  favorable  condition 
is  presented.  We  have  neither  a  schedule  of  commodity  rates 
with  which  to  deal  as  to  which  specific  complaint  is  made,  nor 
have  the  carriers  so  divided  the  continent  into  groups  of  originat- 
ing territory,  save  in  the  sense  that  the  transcontinental  groups 
to  the  coast  terminals,  which  are  entirely  different  from  those 
fovmd  in  the  Spokane  case,  8upra,  furnish  a  foundation  for  present 
combination  rates  to  western  Nevada, 

In  view  of  tliis  situation  we  sluill  make  no  order  as  to  com- 
modity rates  in  this  case  at  tlie  present  time,  l)ut  sliall  direct  the 


486  KAILWAV    IMJOTU.EMS 

cai'riers  to  nmko  a  record  of  all  shipments  into  Nevada  from 
eastern  di'tiniHl  triritovv  during  the  months  of  July,  August,  and 
September,  1910,  or  during  sucli  other  re[)resentative  months 
as  may  bo  determined  upon  by  the  Commission  after  conference 
with  the  carriers,  and  furnish  the  C'onnnission  with  a  statement 
sliowing  as  to  each  shipment  the  following  i'acts  : 

(1)  The  eonnnodity  ;  {'2)  the  weight,  carload  or  less  than  car- 
load; (3)  point  of  origin  and  the  transcontinental  territorial 
group  in  which  the  same  is  situated ;  (4)  rate  that  would  be 
applied  under  the  tariffs  in  effect  July  1,  1910  ;  (5)  the  gross 
charges  thereunder ;  (0)  the  rate  applicable  under  the  order  made 
in  this  case ;  (7)  the  gross  charges  thereunder ;  (8)  the  rate  that 
would  be  applied  were  the  movement  to  Sacramento  ;  (9)  the 
gross  charges  thereunder. 

The  complainant  will  be  ordered  in  this  case,  on  or  before 
October  1,  1910,  to  furnish  to  the  Commission  and  to  the  de- 
fendant Southern  Pacific  Company  a  list  of  commodities  upon 
which  commodity  rates  are  desired,  together  with  an  outline  of 
the  various  territories  or  groups  from  wdiich  commodity  rates 
should  apply. 

We  are  of  the  ophiion  that  justice  can  not  be  done  to  Nevada 
unless  Nevada  points  are  put  on  a  practical  parity  with  points  in 
eastern  Washington  and  eastern  Oregon,  and  a  further  hearing 
will,  in  due  course,  be  held  after  the  data  here  requested  have 
been  furnished  by  carriers  and  complainant. 


XVIII 
EXPORT  AND  DOMESTIC  GRAIN  RATES 

Atlantic  and  Gulf  Competition  ^ 

Prouty,  Commissioner : 

The  purpose  of  this  proceeding  was  the  investigation  of  export 
rates  upon  grain  and  grain  products.  .  .  .  The  matters  embraced 
were : 

First.  Relative  domestic  and  export  rates. 

Second.  Relative  rates  on  grain  and  grain  products  for  export. 

TJiird.  Publication  of  export  tariffs  upon  grain  and  grain 
products.^ 

I 

A  domestic  rate  applies  to  traffic  which  is  being  transported 
for  use  in  this  country ;  an  export  rate  to  traffic  which  is  on  its 
way  to  some  foreign  country.  *  *  *  * 

An  examination  of  the  tariffs  filed  with  the  Commission  since 
1887  shows  that  until  recently  the  published  rates  upon  domestic 
and  export  traffic  have  ordinarily  been  the  same.  Taking  Chi- 
cago as  an  example,  no  export  rate  appears  until  October  1, 18961 
Upon  that  date,  the  domestic  rate  on  corn  being  20  cents  to 
New  York,  an  export  rate  of  15  cents  was  made  which  expired 
October  31,  1896.  January  20,  1897,  the  domestic  rate  still 
being  20  cents,  a  15-cent  export  rate  was  again  put  in  and 
remained  effective  until  September  6,  1897.  No  other  export 
rate  appears  until  February  1,  1899,  when  an  export  rate  of 
18|  cents  upon  wheat  and  16  cents  upon  corn  was  published, 
the  domestic  rates  being  20  cents  and  17;^  cents,  respectively. 
April  17th  this  rate  was  reduced  to  12  cents  upon  both  wheat 

1  Decided  August  7,  1890.  Interstate  Commerce  Tleports,  Vol.  VIII,  pp.  214- 
270.  The  English  practice  is  suggestively  described  at  p.  754,  infra.  At  p.  404 
of  Ripley's  Railroads:  Rates  and  Regulation  the  larger  aspects  of  both  import 
and  export  rates  are  discussed. 

2  This  part  of  the  case  is  omitted.  —  P^d. 

487 


4SS  KAII.^V.\^■    I'K'Ol'.LE^IS 

aiul  corn,  a  (Imuestic  rate  of  17  cents  upon  each  commodity 
beinjj^  niailc  on'octive  the  foHowintif  day. 

From  Minneapolis  to  the  Atlantic  seaboard  the  jjublished  rates 
uptui  all  kinds  oi  grain  and  the  products  of  grain  have  been 
unit'orndy  the  same,  that  is,  wheat,  corn,  and  flour  have  always 
taken  an  identical  rate.  December  28,  1889,  the  domestic  rate 
being  32^  cents,  an  export  rate  of  30^-  cents  was  published 
which  expired  Februar}'  4,  1890.  In  one  or  two  other  instances 
export  rates  were  in  effect  for  short  periods,  but  it  was  not  until 
the  present  year  that  this  became  the  rule.  January  2, 1899,  an 
export  rate  of  25  cents  was  made  effective  upon  flour,  the  do- 
mestic rate  upon  grain  and  flour  being  27^  cents.  This  same 
export  rate  was,  January  4,  1899,  extended  to  grain  and  other 
grain  products  as  well  as  flour.  February  7th  this  rate  was 
raised  1  cent  to  26  cents.  April  18th  the  domestic  rate  was 
reduced  to  24^-  cents,  and  the  export  rate  to  23  cents. 

From  the  Mississippi  river  to  New  York  no  export  rate  is 
found  until  October  1,  1896,  when  a  rate  of  17  cents  on  corn 
was  put  in  against  a  domestic  rate  of  25  cents.  This  export 
rate  expired  October  31,  1896.  January  20,  1897,  the  domestic 
rate  still  being  23  cents,  an  export  rate  of  15  cents  was  applied 
to  corn  which  remained  in  effect  until  September  6,  1897.  Feb- 
ruary 1, 1899,  a  rate  of  13^  cents  upon  corn  was  made  effective, 
the  domestic  rate  being  20|  cents.  April  15th  an  export  rate 
of  12  cents  was  made  upon  both  wheat  and  corn,  the  domestic 
rate  upon  grain  and  grain  products  being  established  April  18th 
at  191  cents.  Both  domestic  and  export  rates  to  other  Atlantic 
cities  are  a  certain  differential  above  or  below  the  New  York 
rate,  so  that  the  history  of  the  export  rate  to  New  York  indicates 
its  history  to  the  entire  Atlantic  seaboard. 

It  would  appear  that  export  rates  have  been  in  effect  to  the 
Gulf  ports  for  a  longer  time  than  to  the  North  Atlantic  ports. 
April  28,  1890,  an  export  rate  of  28  cents  on  corn  from  Kansas 
City  to  Galveston  was  established,  the  domestic  rate  being  48 
cents,  and  this  rate  continued  in  effect  until  December  28,  1895. 
The  domestic  rate  during  that  period  fluctuated  from  48  to  27 
cents.    December  28,  1895,  an  export  rate  of  27  cents  was  made 


EXPOET  AND  DOMESTIC   EATES  489 

upon  corn  against  a  domestic  rate  of  36  cents.  July  21,  1896, 
this  was  reduced  to  16  cents,  and  July  31  to  13  cents,  the 
domestic  rate  being  35  cents.  An  export  rate  of  28  cents  upon 
oats  was  made  between  these  points  July  20,  1891.  The  first 
export  rate  upon  wheat  was  made  February  16,  1896,  and  was 
31  cents.  From  this  time  on  the  export  wheat  rate  fluctuated, 
the  lowest  being  12  cents  August  17,  1896.  At  the  time  of  the 
hearing  the  rate  on  all  kinds  of  grain  for  export  was  10  cents. 
The  domestic  rate  since  June  5,  1896,  has  been  37  cents  on 
wheat  and  35  cents  on  corn.  *  *  *  * 

It  will  be  seen  that  lower  rates  upon  export  than  upon  domes- 
tic grain  bave  for  a  considerable  time  prevailed  through  the  Gulf 
ports,  but  that  until  quite  recently  no  substantial  difference  has 
been  made  through  North  Atlantic  ports,  except  in  the  case  of 
Boston  and  Portland,  which  have  taken  the  New  York  export 
rate,  and  of  Montreal,  which  takes  an  export  rate  1  cent  below 
New  York.  The  question  now  before  us  is  whether  these  lower 
export  rates  are  an  unjust  discrimination  against  consumers  at 
points  bearing  the  higher  domestic  rate,  and  so  in  violation  of 
the  3d  section  of  the  Act  to  Regulate  Commerce.  This  must  de- 
pend upon  the  conditions  under  which  export  and  domestic  grain 
moves,  and  those  conditions  arise  both  at  home  and  abroad. 

Directing  our  attention  first  to  wheat,  and  considering  the 
world  as  a  whole,  we  find  that  certain  countries  produce  more 
wheat  than  they  consume,  while  certain  other  countries  consume 
more  than  they  produce.  The  principal  nations  in  the  former 
class  are  the  United  States,  the  Dominion  of  Canada,  Argentina, 
Russia,  India,  and  Uruguay.  *  *  *  * 

The  Ignited  States  always  produces  more  wheat  than  it  uses 
for  domestic  consumption,  but  the  amount  of  this  surplus  differs 
greatly  from  year  to  year.  The  following  table  gives  the  amount 
of  wheat  exported  from  the  different  wheat-exporting  countries 
averaged  in  periods  of  five  years  for  the  time  indicated  : 


Countries 

1881-1885 

1886-1890 

1891-1895 

United  States    .... 
Other  countries     .     .     . 

122,167,043 
115,090,810 

115,788,774 
134,484,937 

171,731,480 
179,040,922 

400  RAM, WAV    TRor.I.MMS 

The  above  table  shows  the  ex})ort.s  fioiii  the  United  States  of 
both  wheat  and  tlonr  reduced  to  bushels,  and  also  from  other 
countries,  althoujjh  the  amount  of  Hour  exported  from  the  United 
Stiites  is  relatively  much  larger  than  it  is  from  any  other  wheat- 
exporting  nation.  The  exact  statistics  are  not  at  hand  to  show 
exportations  from  other  countries  since  1895,  but  it  sul'liciently 
appears  from  the  above  statement  what  the  relative  position  of 
the  I  nited  States  is  as  a  wheat-exporting  nation. 

It  is  not  material  to  state  the  wheat-consuming  countries  nor 
the  amounts  consumed  by  each.  The  United  Kingdom  and  the 
European  continent  are  the  principal  ones.  It  is  sufficient  to 
observe  that  all  these  principal  grain  markets  are  in  direct  com- 
munication with  all  wheat-producing  countries.  In  Liverpool  or 
Antwerp,  American  wheat  comes  into  direct  competition  with 
foreign  wheat  from  all  these  sources,  and  must  be  sold  in  com- 
petition with  such  wheat.  It  was  said  in  testimony  that  the 
quality  of  American  wheat  was  superior  to  that  produced  any- 
where else,  except  in  the  Canadian  Northwest,  that  this  wheat 
was  largely  used  by  foreign  millers  to  mix  with  inferior  foreign 
grades,  and  that  this  sometimes  created  a  demand  for  this  par- 
ticular quality  of  wheat  which  made  the  price  higher  than  that 
of  different  grades  of  foreign  wheat;  but  on  the  whole  it  must 
be  true  that  the  price  of  our  American  product  is  determined  in 
these  markets  under  the  law  of  supply  and  demand  in  competi- 
tion with  all  other  wheat-producing  nations.  American  wheat 
does  not  make  the  price  abroad,  although  it  may  be  the  greatest 
single  factor  in  the  making  of  that  price.  To  just  what  extent 
it  does  so  operate  must  manifestly  depend  upon  the  amount 
available  from  different  sources. 

If  the  price  of  wheat  in  the  foreign  market  is  fixed  by  condi- 
tions outside  the  United  States,  that  price  of  necessity  determines 
the  sum  which  can  be  realized  in  the  foreign  market  for  our 
American  product.  The  cost  of  laying  this  wheat  down  in  the 
foreign  market  is  made  up  of  two  factors :  the  price  paid  the 
farmer  who  raises  it,  and  the  cost  of  transporting  the  grain  from 
the  grain  fields  to  the  foreign  market.  If  the  cost  of  transporta- 
tion remains  at  all  times  the  same,  the  price  paid  the  farmer  must 


EXPORT  AND  DOMESTIC  RATES  491 

vary  with  the  price  abroad,  and  a  reduction  in  the  cost  of  trans- 
portation would  benefit  the  farmer  by  exactly  the  amount  of  the 
reduction.  It  was  said  by  those  familiar  with  the  business  that 
the  price  at  which  our  surplus  can  be  sold  determines  the  market 
price  of  the  entire  product.  It  seems  plain  that  this  must  be  true 
to  a  large  extent.  We  are  inclined  to  think,  therefore,  that  there 
might  be,  and  at  times  probably  are,  market  conditions  abroad 
which  require  the  making  of  a  low  export  rate  for  the  purpose  of 
disposing  of  our  surplus  product,  and  that  without  such  rate  the 
surplus  product  could  not  be  moved,  resulting  in  a  demoralization 
in  price  to  the  wheat  producer.  In  that  event  the  consumer  would 
get  the  benefit  of  the  low  price  which  the  producer  is  compelled 
to  take,  but  it  will  hardly  be  claimed  that,  taking  the  people  as 
a  whole,  such  fluctuations  in  price  are  desirable. 

Market  conditions  in  case  of  corn  are  somewhat  different  than 
with  wheat.  In  the  sale  of  its  corn  in  foreign  markets  the  United 
States  has  no  serious  competitor.  Argentina  exports  corn  in  lim- 
ited quantities,  and  considerable  appears  to  come  from  southeast- 
ern Europe,  but,  taken  altogether,  the  amount  is  insignificant  in 
comparison  with  that  furnished  by  the  United  States.  The  corn 
market  of  Chicago  fixes  the  price  throughout  the  world.  In  an 
indirect  fashion  corn  comes  into  competition  with  wheat  both 
abroad  and  in  the  United  States.  Wheat  and  corn  are  both  ca- 
pable of  sustaining  life,  and  the  comparative  expense  at  which 
either  article  can  be  procured  tends  in  a  degree  to  determine  the 
amount  of  its  consumption.  The  same  is  true  of  other  grains. 
It  requires,  however,  a  considerable  difference  in  expense  to  over- 
come individual  prejudices  and  habits  in  favor  of  a  particular 
article  of  food.  The  opinion  of  exporters  examined  upon  the 
hearing  was  that  it  would  require  a  very  substantial  advance  or 
reduction  in  the  freight  rate  to  materially  influence  the  export  of 
corn.  We  very  much  doubt  whether  market  conditions  abroad 
require  a  low  export  corn  rate,  or  whether  such  low  rates  pro- 
duce a  material  effect  in  the  movement  of  our  surplus  corn  crop. 
It  is  undoubtedly  true  that  exporters  in  the  United  States  are 
often  enabled  to  make  sales  by  some  concession  in  the  freight  rate 
which  they  could  not  otherwise  make,  but  in  the  making  of  those 


sales  they  are  probably  coinpet  inn"  with  some  other  dealer  in  the 
Uniteil  States  who  is  export! no-  his  corn  by  some  different 
route.  The  lower  rate  is  rec[nired,  not  to  meet  competition  from 
other  countries,  but  competition  between  transportation  com- 
panies in  this  country. 

While,  however,  we  are  of  the  opinion  that  low  export  rates, 
especially  upon  wheat,  might  be  justitied  and  required  by  market 
conditions  abroad,  we  are  not  of  the  opinion  that  the  particular 
rates  under  consideration  are  due  directly  or  indirectly  to  such 
conditions.  Many  grain  exporters  were  examined  in  the  course 
of  this  investigation,  many  railroad  men  were  asked  to  state  the 
reasons  for  the  wide  difference  between  the  export  and  domestic 
rate,  and  no  one  of  them  suggested  that  this  had  been  brought 
about  by  conditions  abroad.  It  was  the  universal  opinion  of  grain 
dealers  and  the  unanimous  admission  of  railroad  representatives 
that  these  rates  were  entirely  due  to  competition  between  rail- 
ways in  America. 

Grain  which  is  grown  east  of  the  Rocky  Mountains  can  ordi- 
narily be  exported  either  through  the  Atlantic  ports  or  through 
the  Gulf  ports.  The  principal  North  Atlantic  ports  are  Mon- 
treal, Portland,  Boston,  New  York,  Philadelphia,  Baltimore,  Nor- 
folk, and  Newport  News,  and  the  principal  Gulf  ports,  Galveston 
and  New  Orleans.  Grain  grown  to  the  west  of  the  Rocky  Moun- 
tains passes  out  through  the  Pacific  ports.        *  *  * 

The  Pacific  ports  are  not  included  in  this  investigation.  Most 
of  the  grain  exported  through  other  ports  is  I'aised  between  a  line 
drawn  north  and  south  through  Chicago  and  the  Rocky  Moun- 
tains. All  this  territory  is  nearer  in  miles  to  the  Gulf  ports  than 
the  Atlantic  ports.  Owing  to  the  geographical  lines  ui)on  which 
our  railway  systems  have  been  developed,  export  grain,  until 
within  a  comparatively  few  years,  has  moved  almost  entirely 
through  the  Atlantic  ports.  These  grain  fields  were  first  reached 
by  roads  fi'ora  the  East.  Those  roads  have  been  strong  and  well 
equipped  and  have  been  able  to  control  the  greater  part  of  this 
business.  Within  recent  years,  however,  the  lines  leading  to  the 
South  have  become  potential  competitors  for  this  traffic.  Their 
physical  condition  has  been  greatly  improved,  expensive  terminals 


EXPORT  AXD   DOMESTIC   RATES  493 

have  been  constructed  at  New  Orleans,  and  are  being  con- 
structed at  Galveston.  Great  sums  have  been  expended  by  the 
government  in  improving  the  water  approaches  of  these  ports, 
until  they  now  admit  vessels  of  the  largest  tonnage.  These  rail- 
ways, being  in  position  to  handle  the  traffic,  and  having  a  most 
important  advantage  in  point  of  distance,  now  insist  that  a 
portion  of  the  business  belongs  to  them.  The  Illinois  Central 
Railroad  with  its  easy  grades  and  unexcelled  terminal  facilities 
contends  that  the  grain  grown  upon  its  own  line,  at  least,  should 
be  exported  by  it.  Lines  leading  south  from  Kansas  City  strenu- 
ously claim  that  grain  should  pass  by  their  routes  to  the  seaboard 
rather  than  go  twice  the  distance  to  the  Atlantic  ports.  Kansas 
City  is  distant  from  Galveston  about  800  miles  and  from  New 
York  about  1400  miles.  The  whole  country  tributary  to  Kansas 
City,  in  which  enormous  quantities  of  wheat  and  corn  are  raised, 
is  therefore  much  nearer  the  Gulf  ports  than  the  Atlantic  ports. 
Testimony  in  this  case  showed  that  the  grain  exported  through 
Galveston  during  the  last  two  or  three  years  had  been  hauled  an 
average  distance  of  from  700  to  1000  miles,  while  had  it  passed 
out  by  the  Atlantic  ports  it  must  have  been  cariied  from  1400 
to  1600  miles. 

Plainly,  this  grain  will  pass  out  through  that  port  by  which  it 
can  reach  its  foreign  destination  most  cheaply.  The  margin  of 
profit  in  handling  grain  has  been  and  is  extremely  small,  and  a 
slight  difference  in  the  freight  rate,  not  more  than  one  eighth  to 
one  fourth  cent  per  bushel,  determines  the  route  which  it  will 
take.  The  ocean  rate  varies  greatly  from  the  same  port,  often 
fluctuating  from  day  to  day.  It  also  varies  between  the  different 
ports.  The  Gulf  ports  insist  that  they  are  under  a  very  substan- 
tial and  permanentdisad vantage  as  compared  with  all  the  Atlantic 
ports,  and  especially  Boston  and  New  York,  in  that  there  are  no 
regular  lines  of  steamships  from  Galveston  to  foreign  ports,  and 
comparatively  few  from  New  Orleans.  The  volume  of  imports 
through  these  ports  is  extremely  small,  so  that  vessels  coming 
there  for  cargoes  must  come  mainly  in  ballast.  From  this  and 
many  other  circumstances  it  results  that  the  average  of  ocean 
rates  from  the  Gulf  ports  to  foreign  markets  is  higher  than  from 


4U4  i;.\ii,\\A\    I'Kor.LKMS 

till"  North  Alliintie  ports.  L'poii  this  proposition  the  evidence  in 
this  case,  ami  the  evidence  taken  before  the  Commission  in  pre- 
vious cases,  leaves  no  (piestion  ;  but  wlien  the  attempt  is  made  to 
go  a  step  further,  and  to  determine  what  in  cents  per  bushel,  or 
per  hundred  pounds,  represents  the  disadvantage  attaching  to  the 
exportation  of  grain  througii  these  ports  as  compared  with  North 
Atlantic  ports  the  problem  is  an  exceedingly  difiicult  one,  and 
indeed  one  to  which  an  exact  answer  is  im})ossible.  What  is  true 
of  the  Gulf  ports  as  compared  with  the  North  Atlantic  ports  is 
true  in  a  less  degree  of  the  North  Atlantic  ports  in  comparison 
with  each  other.  Now  the  total  rate  must  be  the  same  by  all  the 
ports,  and  therefore  the  inland  rate  to  the  Gulf  ports  must  be 
less  than  the  corresponding  inland  rate  to  the  North  Atlantic 
ports,  but  just  hoAv  much  it  is  exceedingly  difficult  to  say.  From 
all  this  we  conclude  that  competition  between  railways  for  a  con- 
siderable portion  of  this  export  grain  is  most  severe,  both  by 
reason  of  the  number  of  competitors  and  the  peculiar  conditions 
under  which  the  competition  proceeds. 

The  first  low  export  rates  from  the  Mississippi  river  and 
Chicago  were,  by  the  admission  of  all  parties,  made  to  divert 
traffic  from  the  Gulf  ports  to  the  eastern  lines.  It  will  be  remem- 
bered that  export  rates  were  in  eifect  from  Kansas  City  to  Gal- 
veston and  New  Orleans  previous  to  this  much  lower  than  the 
ordinar}'  domestic  rates. 

While  Gulf  competition  was  the  cause  of  the  low  export  rates 
from  the  Mississippi  river  to  the  Atlantic  seaboard  beginning 
October  1,  1896,  that  competition  is  not  answerable  for  the 
extremely  low  rates  which  prevail  at  the  present  time,  these 
being  due  to  competition  between  carriers  to  different  North 
Atlantic  ports. 

For  many  years  previous  to  February  1,  1899,  certain  agreed 
differentials  had  existed  in  the  rates  from  interior  western  points 
to  the  North  Atlantic  ports  of  export.  On  export  traffic  Boston 
and  New  York  have  taken  the  same  rate,  Philadelphia  a  rate  2 
cents,  and  Baltimore,  Norfolk  and  Newport  News  3  cents  per 
hundred  pounds  below  New  York.  The  lines  leading  to  New 
York  have  long  insisted  that  these  differentials  were  too  high  as 


EXPOET  AND  DOMESTIC  EATES  495 

against  that  port,  and  in  the  month  of  January,  1899,  an  agree- 
ment was  made  by  which  they  were  to  be  reduced  one  half,  leav- 
ing the  rate  to  Philadelphia  1  cent  and  to  Baltimore,  Norfolk 
and  Newport  News  1^  cents  per  hundred  pounds  lower  than 
to  New  York.  Rates  from  St.  Louis  and  Mississippi  river  cross- 
ings as  far  north  as  East  Dubuque  are  the  same.  There  was 
either  in  effect  or  in  contemplation  at  the  time  of  the  making  of  the 
above  agreement  an  export  rate  on  corn  from  the  Mississippi  river 
'of  15  cents  to  New  York,  13  cents  to  Philadelphia  and  12  cents 
to  Baltimore,  Norfolk  and  Newport  News.  The  lines  leading 
from  St.  Louis  to  Baltimore,  Norfolk  and  Newport  News  insisted 
that  the  rate  of  12  cents  to  these  latter  ports  could  not  be  ad- 
vanced by  reason  of  competition  with  the  Gulf  lines.  It  was  there- 
fore determined  that  the  new  differentials  should  be  adjusted 
by  reducing  the  rate  to  New  York  and  Philadelphia.  Accord- 
ingly, beginning  February  1st,  the  rates  were  from  the  Mississippi 
river  to  New  York  13|  cents,  to  Philadelphia  121  cents,  and  to 
Baltimore,  Norfolk  and  Newport  News  12  cents. 

Lines  leading  to  the  three  latter  points  had  always  insisted  that 
the  original  differentials  did  not  unduly  prefer  those  ports,  and 
that  under  the  modified  differentials  those  ports  would  not  obtain 
a  fair  share  of  the  traffic.  Some  of  these  lines  claimed  that  it 
was  a  part  of  the  original  arrangement  by  which  the  differentials 
were  modified,  that  if  an  actual  trial  of  the  new  differentials  showed 
that  lines  leading  to  these  ports  did  not  obtain  a  fair  share  of  the 
business  the  old  differentials  should  be  restored.  These  lines 
further  insisted  that  the  actual  showing  for  the  months  of  Feb- 
ruary and  March  demonstrated  the  correctness  of  their  conten- 
tion, and  they  accordingly  published  from  St.  Louis  to  these 
ports  a  rate  of  10|  cents,  being  3  cents  below  the  New  York 
rate.  Thereupon  lines  leading  to  New  York  immediately  met 
this  by  an  export  rate  of  12  cents,  thereby  leaving  the  diffei'- 
ential  against  that  city  at  1^  cents.  In  answer  to  this  one 
line  leading  from  St.  Louis  to  Newport  News  published  a  rate 
of  9  cents  upon  corn,  thus  reestablishing  tlie  3-cent  difl'ercntial. 
Here  the  mattei-  rested  at  the  time  of  tlie  liearing,  this  rate  not 
having  been  met  by  either  the  Baltimore  or  New  York  lines. 


496  i;aii.\\a\    imioi'.lk.ms 

Siiu'i'  tlio  liearing  otlier  rates  have  been  put  in  effect  which  will 
be  stated  hereafter. 

It  will  be  seen,  therefore,  that  the  first  export  rate  from  the 
Mississippi  river  was  made  to  meet  Gulf  competition,  and  that 
subsetpient  reductions  have  been  brought  about  entirely  by  com- 
petition between  rail  carriers  leading  to  the  North  Atlantic  ports. 
The  recent  low  export  rates  to  the  Gulf  have  been  made  to  meet 
these  low  rates  east. 

Tiiere  seems  to  be  certain  territory  from  which  it  is  conceded 
that  grain  ought  to  be  exported  by  way  of  the  Atlantic  seaboard, 
and  no  attempt  is  made  to  divert  it  to  the  south.  There  may  also 
be  some  regions  from  which  eastern  lines  are  willing  to  admit 
that  grain  ought  to  be  exported  through  the  Gulf,  although  if 
such  regions  do  in  fact  exist  their  location  was  not  very  clearly 
developed  upon  this  hearing.  It  is  not  our  province  to  divide  up 
this  traflic  nor  apportion  this  territory;  nor,  if  it  were,  is  there 
evidence  in  this  case  wliicli  would  enable  us  to  do  so.  It  is  evi- 
dent, and  we  find,  that  there  is  a  large  ai'ca  from  which  this  ex- 
port business  may  properly  be  said  to  be  competitive  as  between 
different  ports,  and  that  such  competition  does  actually  exist  in 
a  most  intense  degree  ;  first,  between  the  Gulf  and  the  North 
Atlantic  seal)oard ;  secondly,  as  between  different  North  Atlantic 
ports.    This  competition  has  produced  the  present  export  rates. 

While,  however,  competition  between  rail  carriers  was  respon- 
sible in  the  first  instance  for  the  present  lower  export  rates,  there 
is  another  factor  which  must  have  a  most  important  bearing  upon 
the  maintenance  of  these  rates.    We  refer  to  water  competition. 

Chicago  is  the  most  important  grain  market  of  the  United 
States.  The  price  of  grain  in  that  market  probably  controls  the 
price  throughout  this  country  at  least.  Of  all  the  corn  which 
is  sent  from  the  West  to  the  Atlantic  seaboard  the  greater  part 
passes  through  Chicago,  or  a  Chicago  junction.  Of  wheat  the 
greater  bulk  seems  to  center  at  Duluth  rather  than  Chicago, 
although  Chicago  handles  large  quantities. 

Now  it  is  possible  to  transport  grain  from  Chicago  to  either 
Montreal  or  New  York  entiiely  by  water.  The  same  steamer 
which  loads  at  a  Chicago  elevator  can  pass  by  way  of  the  Great 


EXPORT  AND  DOMESTIC   RATES  497 

Lakes,  the  St.  Lawrence  river  and  the  Canadian  canals  to  the 
side  of  the  ocean  steamship  at  Montreal.  Grain  carried  by  lake 
from  Chicago  to  Buffalo  can  there  be  loaded  into  a  canal  boat 
and  taken  through  the  Erie  canal  and  the  Hudson  river  to  the 
ship  side  in  New  York  harbor.  It  did  not  appear  very  definitely 
what  the  rate  per  hundred  pounds  by  water  from  Chicago  to 
Montreal  was,  but  the  testimony  leaves  the  impression  that  it 
is  between  8  and  9  cents  per  hundred  pounds.  Neither  did  it 
appear  exactly  what  the  all  water  rate  was  from  Chicago  to 
New  York.  .  .  . 

We  have  already  seen  that  export  corn,  being  at  Chicago,  and 
export  wheat,  being  at  Duluth,  will  reach  the  foreign  port  by 
the  cheapest  route.  Unless,  therefore,  the  rail  carrier  makes 
substantially  the  same  route  on  this  grain  to  New  York  as  is 
made  by  water  lines  the  trafhc  will  of  necessity  move  by  water, 
and  not  by  rail.  Otherwise  stated,  no  grain  can  be  exported 
from  Chicago  through  New  York  by  rail  unless  the  rail  rate  is 
practically  the  same  as  the  water  rate.  There  may  be  circum- 
stances under  which  the  rail  carrier  can  obtain  a  slightly  higher 
rate,  but  the  testimony  shows,  and  the  necessary  conclusion  from 
the  undisputed  facts  is,  that  no  considerable  difference  can  be 
made  in  favor  of  rail  transportation. 

There  was  no  testimony  to  show  what  the  ocean  rate  from 
Montreal  to  the  foreign  destination  was,  but  it  did  appear  in 
this  case,  and  has  appeared  in  several  previous  cases,  that  the 
ocean  rate  from  New  York  is  lower  than  from  any  other  port 
except  Boston.  It  must  follow,  therefore,  that  all  grain  at  Chi- 
cago, or  which  can  be  brought  to  Cliicago,  will  be  exported 
through  the  port  of  New  York  unless  carriers  leading  from 
Chicago  to  the  other  poi-ts  make  a  rate  as  low  or  indeed  lower 
than  is  made  to  New  York.  The  same  remark  ai)plies  to  interior 
points.  Peoria,  St.  Louis  and  the  lines  leading  from  these  cities 
claim  the  right  to  participate  in  this  export  grain  traffic,  but  this 
they  cannot  do  unless  the  rates  fi'om  such  inteiior  points  to  the 
port  of  export  bear  a  certain  relation  to  the  Chicago  rate,  for  the 
grain  can  reach  either  Chicago  or  these  points.  A  reduction 
in  the  Chicago  export  rate  necessai-ily  forces  a  reduction  in  the 


4".)S  KAILW.W     I'Kor.LKiMS 

oxpmt  rale  from  those  interior  points  to  the  Atlantic  seaboard; 
bill  we  h;n  e  already  seen  that  the  rate  to  the  Atlantic  seaboard 
and  the  rate  to  the  Gnlf  must  correspond  if  any  business  is  to 
move  throuefh  the  Gulf.  Hence  the  inevitajble  conclusion  that 
the  water  rate  from  Chicago  to  New  York  and  from  Chicago  to 
Montreal  determines  the  export  rate  through  all  the  ports  of 
the  United  States  to  a  large  extent  while  that  rate  is  available. 
Whatever  has  been  said  in  reference  to  Chicago  applies  equally 
to  Duluth,  the  lake  rate  from  there  being  but  a  trifle  higher 
than  from  Chicago. 

Not  only  is  water  competition  a  controlling  factor  in  theory, 
but  in  volume  as  well.  The  testimony  upon  this  hearing  was 
that  nearly  all  the  wheat  which  reached  Duluth  went  from  there 
by  water.  It  appeared  that  in  the  year  1898, 127,000,000  bushels 
of  corn  passed  through  Chicago,  and  of  this  amount  97,000,000 
bushels  left  that  port  by  water.  It  was  in  evidence  that  one 
exporter  during  the  year  1898  had  sent  14,000,000  bushels 
of  grain  all  water  through  the  port  of  Montreal.  Competition 
which  actually  carries  such  enormous  quantities  of  traffic  must 
be  controlling  in  its  effect. 

It  should  be  observed  that  these  lake  rates  only  apply  during 
the  period  of  navigation,  which  is  ordinarily  from  the  middle  of 
April  to  the  middle  of  December.  During  some  five  months  in 
the  year  grain  cannot  be  transported  from  Chicago  by  lake,  but 
the  effect  of  this  water  competition  is  not  entirely  confined  to  the 
period  of  navigation.  Considerable  quantities  are  accumulated 
during  the  closed  season  at  different  ports  of  export,  as  well 
as  at  Buffalo  and  other  lake  ports,  to  be  sent  forward  after 
navigation  closes.  Upon  the  contrary,  the  elevators  at  Chicago, 
which  are  estimated  to  contain  about  50,000,000  bushels,  are 
emptied  during  the  season  of  navigation,  but  as  soon  as  naviga- 
tion closes  they  begin  to  fill  up  with  grain  which  is  stored  there 
in  anticipation  of  the  opening  of  the  next  season.  Considerable 
quantities  are  also  stored  in  vessels  lying  at  Chicago  and  Duluth 
during  the  winter  months.  While,  therefore,  there  is  during 
nearly  half  the  year  no  actual  lake  transportation,  the  water 
route  in  a  degree  controls  even  then  the  rail  rate ;  it  limits  to 


EXPORT  AND  DOMESTIC   EATES  499 

an  extent  at  all  times  the  amount  which  the  rail  carrier  can 
obtain  from  this  traffic. 

Water  rates  from  Chicago  to  Montreal  and  New  York  apply- 
to  both  export  and  domestic  traffic,  and  no  distinction  appears 
to  be  made  between  the  two  kinds  of  traffic  in  case  of  the  lake 
and  rail  rate. 

A  pertinent  inquiry  in  all  investigations  of  this  sort  is,  Who 
is  injured?  In  the  present  case,  Whom  does  this  difference 
between  export  and  domestic  rates  harm?  There  are  four  dif- 
ferent classes  involved :  the  producer,  the  carrier,  the  domestic 
consumer  and  the  foreign  cousumero  Many  witnesses  expressed 
the  opinion  that  the  producer  had  the  benefit  of  the  low  rate. 
These  statements  were,  however,  merely  expressions  of  opinion. 
No  witness  was  able  to  say  that  the  pitting  in  of  these  rates  had 
produced  any  actual  effect  upon  the  general  market  price  of 
wheat  and  corn,  and  for  the  obvious  reason  that  the  elements 
which  determine  the  market  price  of  these  commodities  are 
so  complex  and  so  various  and  the  prices  themselves  so  fluc- 
tuate that  it  would  be  impossible  to  observe  the  connection  if 
it  existed.  Whatever  fact  is  found  in  reference  to  this  must 
probably  be  by  inference  from  other  facts. 

It  appears  plain  that  if  the  price  of  grain  were  absolutely 
fixed  by  the  foreign  market  the  American  farmer  would  receive 
the  entire  benefit  of  the  low  rate.  If  grain  cannot  be  sold  for 
more  than  a  certain  price,  and  if  that  price  is  less  than  the 
market  price  in  this  countr}^  plus  the  established  rate,  then 
either  the  rate  or  the  price  in  this  country  must  be  shrunk  or  the 
grain  cannot  find  a  foreign  market.  Upon  the  other  hand,  if 
the  price  of  grain  in  the  foreign  market  is  determined  by  the 
American  market,  then  the  foreigner  has  the  benefit  of  the  low 
rate.  The  price  which  the  American  farmer  receives  is  fixed  by 
his  home  market,  and  the  exporter  can  sell  in  the  foreign  coun- 
try for  that  price  plus  the  rate.  When  the  rate  is  reduced,  the 
price  in  the  foreign  market  is  correspondingly  reduced.  As 
an  actual  fact  it  is  doubtless  true  that  the  price  of  grain,  cer- 
tainly wheat,  abroad  is  fixed  neither  by  the  foreign  nor  by  the 
American  supply  alone,  but  by  the  one  acting  upon  the  other. 


500  l;AlL\\A^    I'Uor.i.KMS 

riulouhliHlly  till'  American  iiiarla'l  has  more  to  do  with  the 
price  abroad  at  some  times  than  at  others,  but  it  must  always 
liave  something  to  do  with  that  price,  and  the  state  of  the  for- 
eign market  nuist  always  act  to  some  extent  upon  the  American 
market.  It  is  probable,  therefore,  that  the  producer  and  the  for- 
eign consumer  obtain  in  varying  degrees  the  benefit  of  the 
low  export  rate  upon  wheat,  hi  view  of  the  almost  unanimous 
testimony  that  market  conditions  abroad  liave  not  required  the 
recent  low  export  rate,  and  that  the  volume  of  exports  has  not 
been  stimulated  by  those  rates,  we  are  inclined  to  think  that 
from  these  particular  reductions  in  rate  the  American  producer 
has  derived  no  special  benefit.  The  carrier  has  lost  and  the 
foreign  consumer  has  gained. 

There  was  no  claim  iii'  this  case  that  the  present  domestic 
rates  were  too  high.  If  the  American  consumer  suffers  from 
the  low  export  rate  it  must  be  from  tlie  necessary  consequences 
which  result  from  such  an  ad  justment  of  rates.  We  cannot  find 
specifically  from  the  testimony  in  this  case  that  the  American 
consumer  in  the  East  is  injui-ed. 

Whatever  injurious  effect  is  capable  of  being  perceived  is 
much  more  likely  to  result  between  different  sections  in  the 
West,  and  ai-ises,  not  from  the  principle  of  the  lower  exjjort 
rate,  but  from  the  application  of  tliat  rate. 

Nearly  all  these  low  ex[)ort  rates  are  what  are  termed  propor- 
tional rates.  They  do  not  ajiply  to  traffic  originating  at  the 
[loint  from  which  they  are  made  effective,  but  only  to  traffic 
which  has  ali'cady  ])aid  the  local  rate  up  to  that  point.  The  12- 
cent  rate  from  the  Mississippi  river  to  New  York  cannot  be  used 
U)T  the  transportation  of  giain  grown  upon  the  east  bank  of  that 
river,  but  only  applies  to  grain  grown  to  the  west,  and  which 
has  already  been  transported  fi'om  some  point  farther  west  up 
to  that  river.  It  is  evident  that  the  application  of  this  rate  to 
the  Mississippi,  without  the  ])utting  in  of  coiTesponding  rates 
at  points  east,  must  liave  affected  the  price  of  grain  grown  west 
of  that  river  as  compared  with  the  price  of  that  grown  east. 
The  export  rate  from  Chicago  and  from  the  Mississippi  river 
is  nominally  the  same.    If  it  were  actually  the  same,  wheat 


EXPOET  AXD  DOMESTIC   EATES  501 

would  be  worth  exactly  as  much  at  the  Mississippi  as  it  is  at 
Chicago  for  export.  The  testimony  tended  to  show  that  the 
putting  in  of  this  low  proportional  rate  did  actually  increase 
the  price  of  grain  at  the  Mississippi  river  in  comparison  with 
the  Chicago  price.        ****** 

It  may  happen  and  in  many  cases  does  happen,  that,  by  the 
application  of  these  so-called  proportional  rates,  grain  from 
the  more  distant  point  obtains  transportation  to  Chicago  or  to 
the  Gulf  at  a  less  rate  than  grain  from  the  intermediate  fields 
through  which  the  transportation  passes.  We  held  in  the  inves- 
tigation as  to  these  export  rates  last  April  that  this  created,  as 
against  such  intermediate  points,  an  undue  preference.  In  the 
Matter  of  Export  Rates  from  Points  East  and  West  of  the  Missis- 
sippi River,  8  I.  C.  C.  Rep.  185.  We  now  repeat  that  finding. 
******** 

The  carriers  insist  that  while  now,  for  the  first  time,  a  system- 
atic difference  is  made  in  the  published  tariff  between  export 
and  domestic  rates,  there  has  in  fact  always  been  such  a  differ- 
ence in  the  actual  rate.  It  is  undoubtedly  true  that  as  to  com- 
petitive traffic  the  published  rate  has  been  largely  departed  from 
in  the  past.  This  export  traffic  is  highly  competitive.  It  moves 
in  large  lots  and  is  handled  by  comparatively  few  individuals. 
The  idea  has  been  more  or  less  prevalent  that  the  provisions  of 
the  Act  to  Kegulate  Commerce  did  not  refer  to  export  traffic. 
For  these  and  other  reasons  export  business  has  been  peculiarly 
open  to  the  manipulation  of  rates. 

The  testimony  of  representatives  of  carriers  familiar  with  rates 
actually  paid  was  to  the  effect  that  there  had  been  in  the  past 
as  wide  a  diiference  between  the  published  rate  and  the  actual 
rate  upon  export  business  as  exists  to-day  in  the  published 
tariffs.  We  have  no  doubt  that  there  has  been  in  the  past  a 
difference  between  the  published  and  actual  rates.  This  differ- 
ence has  existed  in  the  case  of  both  export  and  domestic  traflic. 
It  has  probably  been  greater  in  the  case  of  export  business,  but 
how  great  we  cannot  definitely  find. 

Carriers  also  claim  that  they  are  justified  in  making  a  lower 
rate  on  export  tlian  on  domestic  business  by  the  fact  that  the 


cost  of  service  is  less  to  them.  This  export  business  moves  in 
hirge  h)ts,  often  in  train  loads,  from  a  single  point  of  origin  to  a 
sinsfle  destination.  Larjje  ears  ean  be  used  and  these  cars  can 
be  loaded  to  their  full  capacity.  For  these  and  other  reasons 
they  urge  that  the  cost  of  handling  this  traffic  is  less  than  in 
case  of  domestic.  We  are  inclined  to  think  that  there  may  be 
some  difference  in  the  cost  of  service,  but  we  cannot  from  any 
testimony  in  this  case  express  an  opinion  as  to  the  amount  of 
such  difl'erence.  ****** 

II 

The  second  branch  of  this  case  refers  to  the  relative  rates 
upon  grain  and  the  products  of  grain.  While  the  order  insti- 
tuting the  investigation  includes  the  products  of  both  corn  and 
wheat,  the  manufacturers  of  corn  products  did  not  appear  and 
were  not  heard,  nor  were  any  complaints  received  from  that  class 
until  after  the  close  of  this  hearing.  The  only  product  of  grain 
which  was  fully  represented  upon  the  hearing  was  flour.  It 
seems,  moreover,  that  flour  is  the  only  grain  product  which  is 
exported  in  very  large  quantities,  and  that  is  the  only  subject 
accordingly  to  which  this  discussion  will  be  directed. 

From  the  time  the  Act  to  Regulate  Commerce  took  effect 
until  February  1,  1899,  railway  carriers  have,  with  the  exception 
of  a  short  period  in  1891,  published  the  same  rate  upon  export 
wheat  and  flour.  Different  rates  upon  these  commodities  have 
been  made  in  certain  parts  of  the  United  States,  but  those  rates 
have  never  been  applied  to  export  traffic.  February  1,  1899, 
carriers  leading  to  the  Atlantic  seaboard  published  an  export 
rate  upon  wheat  from  Chicago  to  New  York  of  18|^  cents.  The 
domestic  rate  was  then  20  cents  and  the  rate  upon  flour  was  the 
same.  These  rates  were  not  changed,  and  the  rate  upon  export 
flour  was  thus  1^  cents  per  hundred  pounds  higher  than  the 
rate  upon  export  wheat.  Subsequently  the  rate  upon  wheat 
was  further  reduced  to  12  cents,  the  domestic  rate  upon  wheat 
and  the  rate  upon  flour  being  established  at  17  cents.  Generally 
speaking  the  rate  upon  both  domestic  and  export  flour  is  the 
same  as  the  rate  upon  domestic  wheat,  so  that  the  difference 


EXPORT  AND  DOMESTIC  RATES  503 

between  export  wheat  and  export  flour  is  represented  by  the  dif- 
ference between  domestic  wheat  and  export  wheat.  These  rates 
have  already  been  given,  and  need  not  be  repeated  here. 

The  statement  that  no  distinction  is  made  between  domestic 
and  export  flour  is  subject  to  one  most  important  exception. 
Flour  from  Minneapolis,  the  largest  milling  center  in  the  United 
States,  when  for  export  takes  a  rate  1 1  cents  per  hundred  pounds 
below  the  corresponding  domestic  rate  by  both  rail  and  lake 
and  rail  routes,  and  this  same  difference  obtains  in  the  case  of 
certain  other  milling  points  in  the  Northwest  whose  rates  are 
governed  by  the  Minneapolis  tariff.  This  distinction  does  not 
apply  in  the  case  of  Milwaukee,  nor  at  any  point  south  of  a  line 
drawn  through  Milwaukee  east  and  west.        *  *  * 

The  milling  interests  of  Minneapolis  and  other  points  which 
now  enjoy  an  export  rate  did  not  appear  upon  this  hearing,  but 
practically  all  other  sections  of  the  country  in  which  flour  is 
ground  for  export  were  represented  before  us,  protesting  against 
the  difference  in  rates  upon  export  wheat  and  flour.  These 
milling  interests  may  be  properly  divided  into  the  seaboard  and 
the  interior  millers,  and  while  the  difference  in  rate,  when  actu- 
ally paid,  apparently  affects  both  these  classes  in  substantially 
the  same  way,  their  claims  may  be  stated  separately. 

American  millers  compete  in  foreign  markets  with  one  another, 
but  the  testimony  shows  that  their  most  serious  competitor  is  the 
foreign  miller.  Most  wheat  purchased  by  wheat-consuming  coun- 
tries is  exported  before  being  ground.  Russia  and  Canada  grind  a 
small  amount  of  their  surplus  wheat,  but  the  United  States  is  the 
only  nation  which  exports  any  very  considerable  amount  of  flour. 

Considering  the  seaboard  miller  as  compared  with  the  English 
miller  who  grinds  American  wheat,  both  must  derive  their  sup- 
ply of  the  raw  material  from  the  same  source.  The  American 
miller  at  New  York  pays  the  domestic  rate,  whicli  is  from  the 
Mississippi  river  19|  cents  per  hundred  pounds,  while  the  Eng- 
lish miller  transports  his  wheat  from  the  same  point  to  New 
York  at  the  rate  of  12  cents  per  liundred  pounds.  Clearly,  there- 
fore, the  Englishman  has  an  advantage  by  reason  of  this  differ- 
ence in  fr6ight  rate  over  the  American  of  7^  cents  per  hundred. 


')()■[  KAIl.W.W     I'KOI'.LKMS 

It  alsd  oosts  the  American  luiller  more  to  transport  his  2)ro(hict 
across  the  ocean  than  it  (ioes  the  English  miller  to  transport  his 
wheat  ;  but  this  is  a  matter  with  which  we  are  not  concerned. 
Plainly  the  American  miller  at  New  York  pays,  if  he  pays  the 
published  domestic  rate,  7i-  cents  per  hundred  pounds  more  than 
the  Englishman  in  bringing  his  wheat  to  the  seaboard,  and  is 
therefore  placed  at  a  disadvantage  to  just  that  amount. 

While  this  must  be  so  if  the  seaboard  miller  actually  pays  the 
published  rail  rate,  it  is  not  plain  to  us  that  at  the  present  time 
he  does  pay  that  rate.  During  the  period  of  navigation,  prac- 
tically all  wheat  moves  to  the  east  by  lake  and  rail,  and  upon 
this  traffic  the  rate  is  the  same  whether  for  export  or  domestic 
consumption.  Apparently  it  costs  the  New  York  miller  to-day 
exactly  the  same  to  get  his  wheat  to  New  York  that  it  costs 
the  English  miller.  This  would  not  be  so  during  the  period  of 
closed  navigation,  since  it  seems  that  almost  one  half  the  grain 
actually  received  by  the  New  York  Central  during  the  months 
of  March  and  April  last  was  billed  and  carried  upon  the  domestic 
rate. 

While  the  representatives  of  the  seaboard  millers  stated  that 
these  rates  seriously  discriminated  against  them,  their  testimony 
did  not  show  any  considerable  diminution  in  exports  from  these 
mills.  The  profit  was  said  to  be  less  both  upon  export  and  do- 
mestic flour  than  it  had  formerly  been,  but  the  relative  amount 
which  was  exported  continued  to  be  about. the  same. 

Chicago  may  be  taken  as  a  type  of  the  interior  milling  situa- 
tion, and  to  illustrate  this  situation  we  may  select  one  Chicago 
mill.  This  mill  had  a  capacity  of  about  1500  barrels  a  day. 
The  wheat  which  it  ground  was  entirely  spring  wheat  and  came 
from  beyond  the  Mississippi  river.  In  its  export  business  it  was 
in  competition  with  the  English  miller  who  obtained  his  wheat 
from  the  same  fields.  The  rate  paid  by  the  Chicago  mill  from 
the  Mississippi  river  to  Chicago  was  5  cents  per  hundred  pounds. 
That  paid  by  the  English  miller  upon  the  same  wheat  from  the 
Mississippi  river  to  Chicago  was  1.8  cents  per  hundred  pounds. 
From  Chicago  to  New  York  the  Chicago  miller  paid  upon  his 
manufactured  product  17  cents  while  the  English  miller  paid 


EXPORT  AND  DOMESTIC  EATES  505 

upon  his  raw  product  10.2  cents,  making  a  total  difference  in 
cost  at  New  York  against  tlie  Chicago  miller  of  10  cents  per 
hundred  pounds. 

The  Chicago  miller  could  obtain  the  benefit  of  the  through 
rate  from  the  ^Mississippi  river  to  New  York  under  the  milling- 
in-transit  privilege  by  the  payment  of  an  added  11^  cents  per 
hundred  pounds,  but  he  could  not  apply  this  to  the  export  rate. 
The  domestic  rate  from  the  Mississippi  river  to  New  York  was 
191-  cents  per  hundred  pounds,  whicli,  with  the  added  li  cents 
for  the  milling-in-transit  privilege,  makes  a  total  through  rate  of 
21  cents  compared  with  a  rate  of  12  cents  to  the  English  miller. 
It  is  probable  that  the  discrimination  would  be  rather  less  against 
the  American  who  was  grinding  winter  wheat,  but  not  materially 
less.  A  statement  filed  by  the  representatives  of  the  Milwaukee 
millers  shows  by  many  illustrations  drawn  from  actual  rates  a 
discrimination  of  from  -1  to  11  cents  per  hundi'ed  pounds. 

Considerable  testimony  was  given  as  to  the  margin  of  profit 
in  the  manufacture  of  flour.  This  must  of  course  vary  at  differ- 
ent times  and  under  different  conditions,  but  the  testimony  fairly 
showed  that  from  1  to  2  cents  per  hundred  pounds  was  at  the 
present  time  a  fair  profit,  and  as  great  a  profit  as  had  been  real- 
ized recently  upon  export  flour.  The  testimony  upon  the  whole 
tended  to  show  that  the  profit  on  flour  sold  abroad  was  rather  less 
than  that  upon  flour  consumed  at  home.  The  primary  object  of 
the  flouring  mill  is  usually  to  grind  for  home  consumption,  the 
foreign  market  being  resorted  to  as  a  means  of  disposing  of  that 
portion  of  the  product  which  cannot  be  marketed  at  home. 

Minneapolis  and  the  northwest  generally,  where  the  lower 
export  rate  upon  flour  prevails,  did  not  complain.  The  seaboard 
miller  insisted  that  his  margin  of  profit  had  been  reduced  by  this 
discrimination,  but  the  volume  of  business  was  apparently  about 
the  same.  Upon  the  other  hand,  Milwaukee,  Chicago,  St.  Louis 
and  corresponding  territory  not  only  showed  a  diminution  in 
profits,  but  a  very  marked  decrease  in  the  volume  of  export 
business.  It  was  said  by  these  millers  that  January  1st  they  were 
largely  oversold  for  export,  and  that  for  this  reason  they  sent 
abroad  during  the  early  months  of  the  current  year  considerable 


:,()(',  KA1I.\VA^■  rnoi'.LKMs 

ijuantilios  of  Hour,  but  lliat  they  were  uuablc  to  sell  at  the  pres- 
ent prices  and  were  largely  out  of  the  export  trade.  It  is  our 
conclusion  and  finding  that  tlie  adjustment  of  rates  is  largely 
responsible  for  this.  The  northwestern  miller  enjoys  a  relatively 
better  export  rate.  The  seaboard  miller  can  buy  his  grain  during 
a  lai-ge  [)ortion  of  the  year  upon  the  same  terms  as  the  foreign 
miller.  Against  the  interior  miller  all  these  causes  combine 
with  the  effect  that  he  must  be  largely  or  entirely  driven  from 
the  export  trade. 

The  carriers  justify  the  difference  in  rates  in  part  at  least  upon 
the  ground  of  difference  in  the  cost  of  service.  It  was  urged  by 
them  that  for  several  reasons  the  transportation  of  export  wheat 
is  more  profitable  at  the  same  rate  than  the  transportation  of  flour 
for  export,  and  that  there  ought  to  be  a  difference,  although  some 
thought  that  the  present  difference  was  too  wide.  They  urge 
that  it  is  a  universal  rule  that  the  manufactured  product  pays  a 
higher  rate  than  the  raw  material ;  that  flour  is  much  more  valu- 
able than  wheat ;  that  it  is  more  liable  to  damage  than  wheat ; 
tliat  wheat  moves  in  larger  volume,  so  that  not  merely  car  loads, 
but  whole  train  loads  are  embraced  in  one  shipment;  that  the 
cars  can  be,  and  in  fact  are,  loaded  more  heavily  with  wheat  than 
with  flour.  It  is  also  said  that  the  rate  includes  a  delivery  over 
the  ship  side  in  case  of  flour,  and  at  the  ship  side  in  case  of  wheat. 

The  millers  deny  most  of  the  above  allegations,  and  say  that  if 
the  movement  of  wheat  is  in  larger  volume  at  times,  that  of  flour 
is  much  steadier,  and  that  it  is  for  the  interest  of  the  carrier  to 
build  up  industries  which  bring  other  traffic  in  turn. 

It  is  undoubtedly  true  that  the  raw  material  commonly  takes  a 
lower  rate  than  the  manufactured  product,  and  for  this  there  is 
usually  a  substantial  reason  in  the  character  of  the  two  commodi- 
ties ;  but  this  is  not  by  any  means  a  universal  rule,  and  the  uni- 
form practice  of  carriers  for  years  has  been  to  make  the  same  rate 
upon  export  wlieat  and  flour. 

Export  flour  is  probably  on  the  whole  somewhat  more  valuable 
than  wheat,  although  when  it  is  remembered  that  the  cheaper 
grades  of  flour  are  usually  exported  it  is  questionable  whether 
the  difference  in  value  is  material.  *  *  *  * 


EXPORT  AND  DOMESTIC  RATES  507 

From  all  this  we  conclude  that  the  actual  cost  of  handling 
export  flour  somewhat  exceeds  that  of  handling  wheat,  but  just 
how  much  cannot  be  determined  with  certainty.  We  do  not 
think  that  the  excess  would  be  more  than  from  1  to  2  cents 
per  hundred  pounds. 

The  carriers  also  justify  their  rates  upon  the  ground  of  water 
competition.  It  has  already  been  seen  that  this  species  of  com- 
petition between  Chicago  and  the  seaboard  forces  down  the  grain 
rate  to  a  point  much  below  the  ordinary  rail  tariff.  The  same 
thing  is  true,  although  not  to  the  same  extent,  of  the  transporta- 
tion of  flour.  It  is  not  onl}^  possible  to  carry  flour  from  Chicago 
and  Duluth  to  the  Atlantic  seaboard  by  all  water  routes,  as  well 
as  by  lake  and  rail  routes,  but  considerable  quantities  of  it  are  so 
transported.  In  1898  nearly  one  fourth  of  all  the  flour  leaving 
Chicago  for  the  entire  year  went  from  that  port  by  water.  This 
for  the  most  part  is  carried  to  some  lake  port  like  Buffalo,  and 
from  thence  to  the  seaboard  by  rail,  but  it  may  be  taken  all  water 
to  Montreal  or  New  York  as  in  case  of  grain,  and  the  possible 
rail  route  determines  what  the  rail  portion  of  the  haul  can  exact 
in  the  case  of  flour,  as  it  does  in  the  case  of  grain. 

When,  however,  the  effect  of  this  competition  upon  the  rate  is 
examined,  we  find  that  the  lake  or  the  lake  and  rail  rate  is  not 
as  low  as  the  corresponding  rate  upon  wheat.  The  reason  seems 
to  be  that  equal  facilities  do  not  exist  for  the  carrying  of  flour  by 
lake  as  for  the  carrying  of  grain.  Boats  which  engage  in  this 
traffic  upon  the  Great  Lakes  are  either  line  boats  or  wild  boats. 
Line  boats  ply  between  certain  stated  points  like  Buffalo  and 
Chicago  at  frequent  intervals,  and  are  in  all  cases  under  the  con- 
trol of  some  railroad  company  in  connection  with  which  they  are 
operated.  Wild  boats,  on  the  other  hand,  ply  between  different 
points,  sometimes  starting  from  one  port  and  sometimes  from 
another.  Line  boats  are  equij)ped  for  the  carriage  of  flour  and 
other  package  freight,  while  wild  boats  as  a  rule  arc  not.  Flour 
is  never  carried  by  these  wild  boats,  —  at  least  such  was  the  testi- 
mony,—  but  always  goes  by  the  regular  lines.  In  consequence 
the  rate  upon  flour  can  be  better  maintained  than  that  upon 
wheat.    The  ruling  rate  by  lake  upon  flour  from  Chicago  to  New 


r»()S  KAIL\VA^■    IMJOl'.LKMS 

York  ill  recent  years  has  boon  from  11  to  15  cents  as  against  a 
rate  of  from  8  to  10  cents  upon  wheat.  The  present  lake  and 
rail  rate  on  tlour  is  14  cents  per  hundred  pounds,  and  it  was  said 
that  this  rate  was  maintauied.  The  present  domestic  rail  rate  is 
17  cents,  and  under  these  rates  the  carriage  of  tlour  from  Chicago 
for  export  was  said  to  be  pretty  evenly  divided  between  all  rail 
and  lake  and  rail.  From  this  it  would  appear  that  the  difference 
between  all  rail  and  lake  and  rail  which  can  be  secured  in  case  of 
flour  is  somewhat  greater  than  in  case  of  wheat.  The  differential 
in  favor  of  the  lake  lines  in  former  years  has  usually  been  5  cents 
per  hundred  pounds,  instead  of  the  present  differential  of  3  cents, 
and  this  was  one  ground  of  complaint  by  the  millers.  In  the 
past  the  demoralization  has  been  so  general  that  the  publislied 
rate  has  offered  very  little  criterion  of  the  actual  rate.  If  the 
present  differential  were  5  cents  in  favor  of  lake  lines  the  rate  on 
lake  and  rail  flour  would  be  12  cents,  and  the  millers  claim  that 
the  railroads  take  advantage  of  the  fact  that  they  control  these 
regular  lines  to  unduly  raise  the  lake  and  rail  rate  on  flour. 
There  is  probably  something  to  this,  since  it  appears  that  these 
regular  lines  which  carry  flour  are  all  under  the  influence  of  rail- 
ways leading  from  the  lake  ports  to  the  Atlantic  seaboard;  but  we 
think  and  find  that  lake  competition  fairly  fixes  the  rate  on  flour 
at  from  2  to  4  cents  per  hundred  pounds  above  the  wheat  rate. 
Subject  to  this  difference  the  effect  of  water  competition  upon 
export  flour  is  exactly  the  same  as  upon  export  wheat,  and  that 
effect  need  not  be  restated  here.  *  *  *  * 

Conclusions 

1.  The  first  question  presented  for  determination  is,  Does  the 
Interstate  Commerce  Act,  as  a  matter  of  law,  prohibit  the  charg- 
ing of  an  export  and  a  domestic  rate  upon  the  same  traffic  to  the 
same  point?  This  question  has  recently  been  decided  by  the  Com- 
mission in  the  negative  in  the  case,  Kemble  v.  Boston  ^  Albany 
R.  Co.,  8  I.  C.  C.  Rep.  110.  Since,  however,  the  reasons  upon 
which  that  decision  rested  have  a  certain  bearing  upon  the  ques- 
tions of  fact  involved  in  this  matter  they  may  be  briefly  restated 
here.         ******** 


EXPOKT  AND  DOMESTIC   EATES  509 

January  29,  1891,  a  decision  was  announced  in  the  case,  Neiv 
York  Bd.  of  Trade  ^  Transportation  v.  Pennsylvania  M.  Co., 
4  I.  C.  C.  Rep.  447,  3  Inters.  Com.  Rep.  417,  in  which  the  mat- 
ter of  import  rates  was  considered.  The  complaint  was  that  car- 
riers leading  from  New  York  to  Chicago  and  the  West  were 
transporting  freight  which  arrived  from  foreign  destinations  from 
New  York  to  interior  points  at  a  less  rate  than  was  charged  for 
the  transportation  of  similar  freight  to  the  same  interior  points 
when  such  freight  originated  at  New  York.  Many  companies 
were  made  parties  to  this  proceeding,  and  the  case,  in  its  original 
form,  was  intended  to  embrace  practically  all  ports  of  entr}'  upon 
the  eastern  seaboard  and  the  Gulf.  The  conclusion  reached  was 
that  the  rate  charged  by  the  rail  carrier  from  the  port  of  entr}-  to 
the  inland  destination  must  in  all  cases  be  the  same  upon  mer- 
chandise originating  at  such  port  of  entry  as  upon  merchandise 
coming  to  that  port  from  a  foreign  country.  The  Commission 
made  this  decision,  however,  not  as  question  of  fact,  but  as  mat- 
ter of  law.  Its  holding  was  that  the  effect  of  the  Act  to  Regu- 
late Commerce  extended  no  further  than  the  boundaries  of  the 
United  States ;  that  the  Commission  had  no  power  to  consider 
conditions  existing  without  the  United  States  ;  that  when  traffic 
arrived  at  a  port  within  the  United  States  from  a  foreign  country 
it  was  not  proper  to  inquire  from  whence  it  came,  but  it  must 
be  treated  in  all  respects  as  though  it  was  domestic  traffic  origi- 
nating at  the  port  of  entry. 

The  Import  Bate  Case,  Texas  ^  P.  B.  Co.  v.  Literstate  Com- 
merce Commission,  162  U.  S.  197,  40  L.  ed.  940,  5  Inters.  Com. 
Rep.  405,  was  an  attempt  upon  the  part  of  the  Commission  to 
enforce  its  order  in  tliis  last-named  proceeding.  The  Texas  & 
Pacific  Railway  Company,  with  its  connections,  was  engaged  in 
the  transportation  of  merchandise  from  Liverpool,  England,  to 
San  Francisco,  Cal.  This  merchandise  was  taken  upon  a  through 
rate,  came  by  water  from  Liverpool  to  New  Orleans,  and  by  rail 
from  New  Orleans  to  San  Francisco.  This  entire  through  rate 
was  often  much  less  than  the  rate  on  corresponding  articles 
from  New  Orleans  to  San  Francisco,  and  the  division  of  the  rail 
carrier  was  of  course  very  much  less  than  its  domestic  rate  for  a 


510  EAIL\VA\'   riJOr.LEMS 

corresponding  service.  For  example,  one  of  the  articles  so  trans- 
ported was  dry  goods  ;  the  rate  on  dry  goods  by  this  line  fioni 
Liverpool  to  San  Francisco  was  107  cents  per  hundred  pounds, 
while  the  rate  from  New  Orleans  to  San  Francisco  over  the  same 
rail  line  was  374  cents  per  hundred  pounds.  The  defendants 
juslitied  the  rate  from  Liverpool  upon  the  ground  that  water 
competition  by  various  routes  between  Liverpool  and  San  Fran- 
cisco compelled  them  to  charge  this  rate  if  they  obtained  any 
portion  of  the  business. 

The  rule  laid  down  by  the  Commission,  and  which  was  con- 
tended for  by  the  Commission,  in  that  case  would  have  compelled 
the  carrier  to  charge  the  same  rate  from  New  Orleans  to  San 
Francisco  upon  import  as  upon  domestic  merchandise,  and  would 
have  excluded  all  consideration  of  conditions  existing  abroad. 
The  Supreme  Court  refused  to  concur  in  this  construction  of  the 
Interstate  Commerce  Act,  holding  that  in  case  of  imported  traffic 
as  well  as  of  traffic  originating  within  the  Laiited  States  the  Com- 
mission should  have  reference  to  all  conditions,  whether  at  home  or 
abroad,  which  bore  upon  the  reasonableness  of  the  rate  adjustment. 
It  held  that  the  Act  to  Regulate  Commerce  did  not  prescribe  a 
hard  and  fast  rule  which  required  that  imported  merchandise 
should  be  taken  from  the  port  of  entry  at  the  same  rate  which 
was  applied  to  domestic  merchandise  originating  at  that  point. 
The  exact  point  decided  was  that  carriers  were  not,  as  a  matter 
of  law,  prohibited  from  participating  in  a  through  rate  from  a 
foreign  destination  to  an  interior  point,  of  which  the  division 
received  by  the  inland  carrier  was  less  than  its  rate  for  a  similar 
service  in  the  transportation  of  domestic  merchandise  between 
the  same  points.  This  decision  must  apply  equally  to  export 
traffic,  and  upon  its  authority  we  are  constrained  to  hold  that,  as 
matter  of  law,  the  Interstate  Commerce  Act  does  not  prohibit  a 
rail  carrier  from  making  a  through  rate  from  a  point  within  the 
United  States  to  a  foreign  destination,  of  which  its  division  shall 
be  less  than  the  amount  charged  for  the  corresponding  transpor- 
tation of  domestic  merchandise  to  the  port  of  export.     *        * 

Carriers  in  gr)me  quarters  seem  to  assume  that  the  Import  Rate 
Case  above  referred  to  in  effect  withdrew  import  and  export 


EXPORT  AND  DOMESTIC  RATES  511 

traffic  from  the  purview  of  this  Commission.  Such  is  not  at  all 
the  result  of  that  decision.  It  rather  enlarged  the  power  of  this 
body  over  that  species  of  traffic,  for  while  it  was  held  that  there 
was  no  rule  like  that  contended  for  by  the  Commission  it  was 
also  held  that  conditions  abroad  as  well  as  at  home  should  be 
considered,  and  that  the  interests  of  all  classes,  and  not  of  a 
single  class,  should  be  taken  into  account.  It  is  still  a  question 
of  fact  whether  rates  upon  export  or  import  traffic,  as  well  as 
those  upon  domestic  traffic,  are  in  contravention  of  the  provisions 
of  the  Act  to  Regulate  Commerce. 

The  question  for  our  consideration  is  therefore  one  of  fact,  and 
seems  to  be,  upon  this  branch  of  the  case,  whether  the  present 
adjustment  of  export  and  domestic  rates  discriminates  against 
the  domestic  consumer  and  in  favor  of  the  foreign  consumer. 
What  reason  is  there  why  the  foreigner  who  eats  our  wheat 
should  have  it  transported  from  the  INlississippi  river  to  New 
York  for  12  cents  a  hundred  pounds,  while  the  American  is 
obliged  to  pay  19^  cents  for  the  same  service? 

The  Supreme  Court  in  the  Import  Rate  Case  has  laid  down 
the  rule  which  should  guide  this  Commission  in  the  determina- 
tion of  that  question.  It  is  not  every  discrimination  which  is  for- 
bidden by  the  Act  to  Regulate  Commerce,  but  only  unjustifiable 
discriminations  ;  and  the  court  holds  that  in  determining  whether 
a  discrimination  is  in  fact  unjustifiable  the  interests  of  all  parties 
involved  must  be  considered.  The  parties  involved  in  this  case 
are  the  producer  of  the  grain,  the  domestic  consumer  and  the 
inland  carrier;  we  are  not  concerned  with  the  foreign  consumer. 
Now,  taking  all  these  classes  together,  is  the  discrimination 
against  the  seaboard  consumer  an  unjust  one  ? 

The  railways  insist  that  it  is  a  matter  of  no  consequence  to  the 
eastern  consumer  what  rate  is  charged  the  foreigner,  provided 
the  domestic  rate  is  a  reasonable  one,  and  there  is  no  pretense  in 
this  case  that  domestic  rates  are  not  sufficiently  low.  To  this 
proposition  we  cannot  fully  assent.  In  the  first  place  the  for- 
eigner is  to  an  extent  in  competition  with  the  American.  Both 
are  engaged  in  the  production  of  articles  sold  in  the  same  market, 
either  abroad  or  in  the  United  States.    If  the  Englisliman  can 


512  KAll>\\A\     rUOlil.K.MS 

procuii'  the  necessities  of  life  cheaper  than  his  American  com- 
petitor, that  gives  him  the  advantage.  A  few  cents  per  hundred 
pounds  in  the  price  of  his  Hour  would  not  be,  of  itself,  a  matter 
of  great  consequence,  but  the  same  sort  of  a  preference  applied 
to  all  articles  which  enter  into  his  daily  support,  as  well  as  to  the 
product  of  his  labor,  may  determine  whether  he  or  the  American 
can  manufacture  for  our  own  market  even. 

Again,  railway  rates  are  in  amount  interdependent  the  one 
upon  the  other.  The  railway  is  entitled  to  earn  a  fair  return 
upon  its  investment.  If  the  proposition  is  made  to  reduce  the 
rate,  one  important  factor  in  the  determination  of  that  question 
is  the  total  amount  of  earnings.  If  the  rate  is  too  low  upon  one 
article,  in  the  end  other  articles  pay  too  high  a  rate.  Unless  there 
is  some  good  reason  for  the  distinction,  the  rate  to  the  American 
ought  not  to  be  higher  than  to  the  foreigner.  If  our  carriers,  in 
the  absence  of  any  constraining  reason,  can  transport  corn  from 
the  Mississippi  river  to  New  York  for  12  cents  per  hundred 
pounds  for  export,  that  of  itself  shows  that  a  rate  of  12^  cents 
to  the  domestic  consumer  is  unreasonable.  Conditions  may  jus- 
tify the  existence  of  a  lower  rate  for  export  than  for  domestic 
use,  but  in  the  absence  of  such  conditions  we  cannot  concur  in 
the  idea  that  any  permanent  system  of  rates  which  renders  a  serv- 
ice for  the  foreigner  at  a  less  price  than  is  paid  by  the  American 
can  be  just  to  the  American;  nor  would  we  permit  the  contin- 
uance of  such  a  system  if  we  had  the  power  to  prevent  it.  From 
the  standpoint  of  the  eastern  consumer  the  difference  in  rate  of 
itself  creates  a  discrimination  which  is  undue,  unless  justifiable 
in  the  interest  of  the  producer  or  the  carrier. 

How  stands  the  interest  of  the  producer ;  in  other  words,  to 
what  extent  is  the  western  farmer  benefited  by  these  low  export 
rates  ? 

The  United  States  produces  every  year  a  certain  quantity  of 
wheat.  Of  that  quantity  the  greater  part  is  consumed  by  our 
own  people,  but  a  very  large  surplus  still  remains  which  must  be 
disposed  of  abroad.  This  surplus  is  sold  to  foreign  countries  in 
competition  with  wheat  from  other  parts  of  the  world,  and  it 
must  be  sold  at  the  price  obtainable  in  the  foreign  market.    While 


EXPORT  AND  DOMESTIC   EATES  513 

at  times  that  price  may  be  practically  fixed  by  the  United  States, 
and  while  at  all  times  it  is  influenced  by  the  price  here,  still 
it  must  be  admitted  that  ordinarily  the  foreign  market  is  not 
entirely  determined  by  our  own  market. 

It  has  already  been  said,  in  the  findings  of  fact,  that  our  wheat 
must  be  delivered  abroad  at  the  market  price  there.  If  the  for- 
eign price  is  less  than  our  market  price  plus  the  ordinary  cost  of 
transportation,  either  the  price  here  or  the  price  of  transportation 
must  be  reduced.  Witnesses  of  experience  in  this  respect  gave 
it  as  their  opinion  that  market  conditions  abroad  frequently 
require  a  low  rate  in  order  to  dispose  of  our  surplus  product ; 
that  the  price  of  our  surplus  wheat  establishes  the  market  price 
in  this  country,  and  that,  therefore,  at  times  a  low  rate  was  of 
distinct  benefit  to  the  farmer,  and  indeed  was  necessary  to  pre- 
vent the  demoralization  of  prices. 

Conditions  with  reference  to  corn  are  apparently  somewhat  dif- 
ferent. The  corn  market  of  the  United  States  controls  that  of 
the  world.  The  price  at  which  our  com  can  be  sold  abroad  has 
something  to  do  with  the  amount  which  will  be  taken  by  foreign 
countries,  but  so  docs  a  lower  price  upon  the  eastern  seaboard 
stimulate  the  consumption  of  corn.  It  is  probable,  and  this  was 
the  testimony  of  exporters,  that  the  difference  in  rate  has  little 
influence  upon  the  volume  of  corn  exportation. 

Our  conclusion  is  that  a  low  export  rate  is  sometimes  neces- 
sary to  dispose  of  our  surplus  wheat,  and  that  in  a  much  less 
degree  it  may  promote  the  movement  abroad  of  our  surplus  corn ; 
that  to  the  extent  that  it  does  operate  to  move  our  surplus  grain 
it  is  of  distinct  benefit  to  the  producer,  and  that  his  interest 
would  outweigh  that  of  the  American  consumer,  and  would  jus- 
tify a  moderate  difference  in  the  rate.  The  price  of  the  surplus 
within  certain  limits,  seems  to  fix  the  price  of  the  whole,  and  in 
the  disorganization  of  prices  from  a  glut  in  the  market  the  pro- 
ducer loses  more  than  the  consumer  gains.  The  ability  to  dispose 
of  an  actual  surplus  is  a  sort  of  safety  valve  which  steadies  the 
whole  situation.  It  must  be  observed,  too,  that  in  applying  this 
low  rate  to  our  surplus  product  the  railway  does  precisely  what 
the  miller  does  and  what  every  other  manufacturer  is  likely  to 


514  l^VILWAV    IMIOT.LKMS 

do.  The  foreigner  can  Imy  American  fiour  and  almost  every 
article  of  American  manufacture  cheaper  tiian  tlie  American  can 
at  the  mill  or  the  factory.  It  is  equally  apparent  that  whetlier 
market  conditions  abroad  do  justify  the  lower  export  rate  is  a 
very  delicate  question  to  deal  with,  and  one  which  had  better  Ije 
left  to  the  law  of  supply  and  demand  so  far  as  it  can. 

An  examination  of  this  question  from  the  point  of  view  of  the 
eastern  consumer  and  tlie  western  producer  leads  to  the  conclu- 
sion that  the  low  export  rate  is  an  unjust  discrimination  against 
the  former  unless  it  is  required  to  move  our  surplus  grain,  in 
which  event  it  is  within  some  limits  proper ;  that  this  Commission 
ought  not  to  interfere  unless  it  clearly  appears  that  the  differ- 
ence is  unduly  great,  or  that  no  conditions  abroad  require  it. 

In  the  present  case  tliose  facts  did  clearly  appear.  It  appeared 
beyond  all  question  that  the  low  export  rate  in  force  at  the  time  of 
the  hearing  had  not  resulted  from  any  market  conditions  abroad. 
The  witnesses  were  almost  unanimous  in  the  opinion  that  these 
rates  had  not  been  required  by  such  conditions,  and  that  they  did 
not  stunulate  the  export  of  our  grain.  It  was  practically  con- 
ceded by  the  carriers  that  the  rates  were  abnormally  low,  and  that 
they  had  resulted  entirely  from  competition  between  rail  carriers 
themselves.  If  this  is  true,  then  it  seems  plain  that  the  Ameri- 
can producer  has  derived  no  substantial  benefit  from  these  rates  ; 
that  the  American  carrier  has  lost  enormously  by  them,  and  that 
the  foreigner  alone  has  had  the  benefit  of  tliem.  The  discrimina- 
tion  against  the  eastern  consumer  is  not  justified  unless  there  is 
something  in  the  interests  of  the  carrier  which  excuses  it. 
******** 

The  cause  of  these  low  export  rates  has  been  fully  stated  in 
the  findings  of  fact.  The  carriers  themselves  with  one  voice 
affirm  that  they  were  entirely  the  result  of  competition  between 
American  railways,  first  between  the  eastern  lines  and  the  Gulf 
lines,  afterward  between  the  different  eastern  lines.  Since  Janu- 
ary 1st  export  rates  on  grain  have  been  reduced  in  many  cases 
almost  one  half;  at  these  reduced  rates  enormous  quantities 
of  traffic  have  moved ;  no  market  conditions  abroad  required 
these  reductions,   and  the   American   producer   has    not  been 


EXPOET  AND  DOMESTIC  EATES  515 

materially  benefited  by  them  ;  our  railways  have  sacrificed  mil- 
lions of  dollars  without  producing  any  real  effect  upon  the  flow 
of  traffic,  for  the  relative  rate  has  remained  about  the  same  and 
the  low  rate  has  not  increased  the  total  volume.  This  deple- 
tion in  revenue  has  been  a  donation  to  the  foreigner. 

It  is  impossible  more  strongly  to  emphasize  the  folly  of  this 
whole  proceeding  than  by  the  mere  statement  of  it ;  and  yet  in 
just  what  way  does  it  violate  the  Act  to  Regulate  Commerce  ? 
The  purpose  of  that  Act  was  to  foster  railway  competition. 
The  highest  judicial  authority  has  declared  that  competition 
between  railways  may  be  a  reason  for  making  a  lower  charge  to 
the  more  distant  point.  We  have  found  that  this  traffic  is  not 
only  the  legitimate  subject  of  competition,  but  that  the  compe- 
tition for  it  must  be  conducted  under  such  circumstances  as  to 
render  it  peculiarly  active  and  difficult  to  control.  To  agree 
upon  these  differentials  to  the  different  ports  might  be  a  crimi- 
nal act.  Apparently  there  is  no  method  by  which  these  ques- 
tions can  be  settled  except  by  a  resort  to  such  measures. 

The  real  question  is  whether,  in  this  warfare,  domestic  as  well 
as  export  rates  ought  not  to  be  reduced ;  whether  the  American 
as  well  as  the  foreigner  ought  not  to  have  the  benefit  of  this 
competition.  We  should  be  inclined  to  take  this  view  of  the 
matter,  and  to  make  some  order  which  would  at  least  limit  the 
extent  to  which  export  might  be  lower  than  domestic  rates,  were 
it  not  for  two  circumstances. 

First :  Assuming  that  the  basis  of  export  and  domestic  rates 
ought  to  be  the  same,  we  think  tliere  may  be  cases  where  a  differ- 
ence may  properly  exist.    Of  this  Boston  is  a  good  illustration. 

The  through  rate  from  Chicago  to  Liverpool  must  be  the 
same  by  all  the  ports.  The  ocean  rate  from  Boston  to  Liver- 
pool is  the  same  as  from  New  York ;  therefore,  unless  the  inland 
rate  from  Chicago  to  Boston  is  the  same  as  that  from  Chicago 
to  New  Yoik  export  traffic  will  move  through  New  York,  not 
through  Boston.  These  circumstances  have  induced  the  rail- 
ways serving  these  two  ports  to  agree  for  the  last  thirty  years 
that  the  export  rate  to  Boston  and  New  York  from  the  West 
might  be  the  same.     It  is  difficult  to  see  how  this  agreement 


51G  KAiLWAV  ruor.LK.MS 

i;in,  in  its  operation,  be  treated  as  unjust  or  as  in  violation  of 
I  lie  Act  to  Regulate  Commerce.  This  Commission  has  twice 
decided  that  the  Boston  domestic  rate  may  properly  be  higher 
than  the  New  York  domestic  rate.  We  must  assume,  therefore, 
that  the  domestic  rates  to  these  two  sections  are  properly  ad- 
justed, and  that  no  discrimination  is  made  against  New  England 
by  charging  the  higher  rate.  The  rate  to  the  foreigner  is  fixed 
by  that  through  New  York,  and  therefore  the  making  of  the  same 
rate  via  Boston  does  not  discriminate  in  his  favor  as  against  the 
New  England  consumer.  The  commercial  interests  of  Boston 
do  not  complain  of  the  export  rate.  Under  these  circumstances, 
why  should  not  New  England  carriers  be  permitted  to  engage 
in  this  export  traffic  ? 

It  may  be  that  if  these  carriers  could  be  compelled,  by  an 
order  of  this  Commission,  to  make  the  same  domestic  and  ex- 
port rates  they  would  as  a  consequence  reduce  the  domestic  rate 
rather  than  surrender  the  export  traffic,  and  that  consequently 
Boston  and  perhaps  some  other  New  England  territory  would 
obtain  the  benefit  of  a  lower  domestic  rate.  They  might,  upon 
the  other  hand,  prefer  to  surrender  the  export  business  rather 
than  reduce  the  domestic  rate ;  but  the  question  before  us  is 
not  what  the  carriers  could  be  compelled  to  do,  but  what  should 
they  in  fairness  be  required  to  do. 

What  is  true  of  the  rate  to  Boston  is  equally  true  of  the  export 
rate  to  Portland  and  Montreal ;  it  is  perhaps  even  more  true  of 
export  rates  to  the  Gulf  ports.  Taking  effect  July  1,  1899,  the 
local  export  rate  on  wheat  from  Kansas  City  to  Galveston  is  19 
cents,  the  proportional  export  rate  15  cents,  and  the  local  domes- 
tic rate  37  cents.  Through  rates  via  Kansas  City  undoubtedly 
make  the  ordinary  domestic  rate  from  Kansas  City  somewhat  less 
than  37  cents,  but  the  relation  is  probably  pretty  well  mdicated 
by  the  local  export  rate  compared  with  the  local  domestic  rate. 
We  have  here  a  domestic  rate  almost  twice  as  great  as  the  export 
rate.  Without  expressing  any  opinion  as  to  the  propriety  of  as 
wide  a  difference,  or  as  to  the  reasonableness  of  the  domestic 
rate,  it  seems  evident,  or  extremely  probable,  that  these  lines  may 
with  propriety  in  competition  for  this  export  business  make  a 
lower  charge  upon  export  than  upon  domestic  traffic. 


EXPORT  A^D  DOMESTIC   RATES  517 

Now  if  an  order  were  to  be  made  that  domestic  and  export 
rates  should  under  all  circumstances  be  the  same,  it  might  result, 
and  probably  would  result,  in  either  driving  out  of  business 
those  lines  where  two  rates  may  with  propriety  exist,  or  at  all 
events  in  unjustly  depleting  the  revenues  of  those  lines.  It 
would  give  to  those  lines  in  whose  tariffs  the  difference  is  least 
an  undue  advantage  over  other  lines  in  this  competitive  struggle. 
Before  making  any  order  which  would  not  work  injustice  in  the 
premises,  it  would  be  necessary  to  determine  in  each  case  by 
how  much  the  domestic  rate  might  properly  exceed  the  export 
rate,  if  at  all,  and  compel  the  observance  of  this  relation.  To 
do  this  would  require  us  to  determine  what  the  differentials 
between  these  ports  should  be,  and  what  reasonable  domestic 
rates  to  these  ports  should  be,  and  we  certainly  cannot  under- 
take to  do  this  upon  the  testimony  before  us. 

The  second  circumstance  which  deters  us  from  attempting  to 
interfere  is  the  existence  of  water  competition.  These  rates  were 
made  before  the  opening  of  navigation,  and  were  not  probably 
influenced  by  that  element ;  but  we  must  dispose  of  the  case  Avith 
some  reference  to  conditions  as  they  now  exist,  and  water  compe- 
tition is  at  the  present  time  a  factor  which  cannot  be  ignored. 

By  referring  to  the  findings  of  fact  it  will  be  seen  that  Chi- 
cago and  Duluth  are  the  two  points  througli  which  the  greatest 
quantity  of  wheat  and  corn  passes  on  its  way  to  the  seaboard. 
From  both  these  points  communication  with  the  seaboard  can 
be  had  by  water.  The  greater  part  of  the  grain  which  leaves 
these  cities  for  the  east  moves  by  w^ater,  and  it  cannot  be  ques- 
tioned that  the  water  rate  to  New  York  determines  the  rail  or 
the  water  and  rail  rate  to  that  same  point.  This  Commission 
has  always  held  that  water  competition,  if  it  in  fact  exists,  is 
an  important  circumstance  in  determining  what  rates  may  be 
justly  charged  by  the  rail  carrier.  The  reasons  for  that  have 
often  been  stated,  and  need  not  be  repeated  here.  The  water 
carrier  is  not  subject  to  the  provisions  of  the  Act  to  liegulate 
Commerce;  it  publislies  no  rates;  it  may  change  its  rates  from 
day  to  day  or  fiom  hour  to  hour;  it  can  carry  certain  commodi- 
ties at  a  lower  rate  probably  than  can  be  })rofitably  made  by 
rail.    We  have  therefore  been  inclined  to  hold  tliat  competition 


:,1S  iJAiLWAv  ri;()i'.Li:i\r8 

of  tliis  kind  might  be  met  by  the  rail  carrier  without  in  all 
cases  a  corresponding  reduction  at  points  not  affected  by  such 
competition.  There  is  no  invariable  rule  of  this  sort,  nor  can 
it  be  said  that  interior  and  intermediate  points  ought  not  to 
receive  any  benefit  from  water  competition,  but  neither  can  it 
be  allirmed  that  the  carrier  should  in  no  case  be  allowed  to 
meet  such  competition  except  at  the  expense  of  its  interior 
and  intermediate  territory.  Such  a  requirement  would  often  be 
unjust  to  the  carrier  and  of  no  benefit  to  interior  points. 

In  this  case  the  export  rate  to  New  York  is  absolutely  fixed 
by  water  competition,  although,  as  we  have  seen,  the  low  export 
rates  were  first  fixed  without  reference  to  such  competition. 
The  export  rate  to  New  York  of  necessity  fixes  that  rate  through 
every  other  port.  This  being  true  we  are  not  inclined  to  say, 
so  far  as  the  export  rate  is  actually  controlled  by  water  compe- 
tition, and  while  it  is  so  controlled,  that  carriers  must  at  all 
points  reduce  correspondingly  their  domestic  rates.  The  rate 
from  Chicago  to  New  York  is  a  base  rate.  Thousands  of  other 
rates  are  a  percentage  of,  or  a  differential  above  or  below,  that 
rate.  A  change  in  that  rate  automatically  works  a  change  in 
all  these  other  rates.  If  the  carriers  prefer  to  leave  the  New 
York  domestic  rate  higher  than  the  export  rate  by  reason  of 
these  many  dependent  rates,  we  should  hardly  be  justified  in 
interfering  unless  some  specific  injustice  in  some  particular 
case  was  called  to  our  attention. 

Of  course  no  business  actually  moves  during  the  period  of 
navigation  between  Chicago  and  New  York  upon  the  domestic 
rail  rate  so  long  as  that  rate  is  materially  higher  than  the  water 
rate,  (xrain  to  New  York  can  move  by  water  at  the  same  rate 
both  for  export  and  domestic  consumption,  and  the  two  rates 
must  be  practically  the  same  to  that  point.  Furthermore,  the 
New  York  domestic  rate  of  necessity  to  an  important  degree 
influences  other  domestic  rates  upon  the  seaboard.  The  Phila- 
delphia miller  cannot  pay  5  cents  per  hundred  pounds  above  the 
New  York  miller.  Carriers  apparently  meet  this  condition  by 
lake  and  rail  rates  which  are  much  lower  than  the  domestic  rail 
rate,  and  which  apply  to  both  domestic  and  export  traffic  as  a 


EXPOET  AND  DOMESTIC  KATES  519 

rule.  Under  tlie  operation  of  these  tariffs  most  of  the  eastern 
seaboard  lias  the  benefit  of  tlie  low  export  rate,  but  we  assume 
that  there  is  some  substantial  reason  why  carriers  do  not  reduce 
all  rail  domestic  rates  accordingly. 

An  examination  of  the  tariffs  in  effect  at  the  time  of  the 
hearing,  as  well  as  those  at  present  in  effect,  shows  that  the  dif- 
ference between  export  and  domestic  rates  is  the  least  through 
the  ports  of  New  York,  Philadelphia,  Baltimore,  Norfolk  and 
Newport  News.  The  published  rates  both  at  present  and  in  the 
past  show  that  the  relation  between  the  domestic  and  export 
rate  through  these  ports  is  about  the  same;  if  there  were  but 
one  rate  at  New  York  there  would  probably  be  no  occasion  for 
but  one  through  all  these  ports. 

Our  conclusion  upon  this  branch  of  the  case  is  that  market 
conditions  sometimes  in  case  of  wheat,  seldom  in  case  of  corn, 
justify  an  export  rate  lower  than  the  domestic  through  the  port 
of  New  York ;  and  that  water  competition  may  have  the  same 
effect.  Ordinaril}^,  during  the  period  of  closed  navigation  the 
export  and  domestic  rate  should  be  the  same  through  that 
port,  and  the  Atlantic  ports  above  mentioned.  Lower  export 
rates  may  perhaps  with  propriety  be  made  through  other  ports, 
thereby  enabling  lines  leading  to  them  to  compete  for  this  export 
business.  Such  an  adjustment  of  rates  would  be  to  the  advan- 
tage of  the  carrier,  just  to  the  American  consumer,  and  equally 
so  to  the  producer.  With  the  opening  of  navigation  water  com- 
petition introduces  a  new  element  which  may  necessitate,  in  the 
fair  interest  of  the  carriers,  two  rates  at  New  York  and  conse- 
quently at  all  other  ports.  The  problem  is  primarily  one  for  the 
carriers  rather  than  this  Commission,  and  we  do  not  think  at  the 
present  time  any  inteiference  on  our  part  would  contribute  to 
its  solution.       ******* 


III 

The  element  of  direct  injury  which  was  absent  in  the  first 
branch  of  this  case  is  abundantly  present  in  the  second  branch. 
The  complaint  is  that  discrimination  in  the  freight  rate  exists 


520  j;ail\\av  tkop.lems 

against  the  milliner  imhistry  in  certain  sections  of  the  United 
States,  and  the  miller  makes  oath  that  these  freight  rates  have 
destroyed  or  are  fast  destroying  his  export  business.  We  have 
found  that  this  is  in  a  measure  true  of  Milwaukee,  Chicago, 
St.  Louis  and  corresponding  territory  in  the  middle  west ;  in  all 
this  territory  millers  are  being  excluded  from  the  export  trade ; 
and  we  have  further  found  that  this  apparently  results  from  the 
improper  adjustment  of  freight  rates.  In  part  this  improper 
adjustment  consists  in  giving  to  certain  sections  better  rates 
on  flour  in  comparison  with  the  complaining  territory  than  have 
been  previously  enjoyed,  and  in  part  in  creating  an  unreasonable 
difference  in  the  rate  upon  wheat  and  flour.  This  being  so,  to 
what  relief,  if  any,  are  the  millers  entitled  ?  *  * 

The  main  complaint  of  the  millers  is  directed  to  the  difference 
in  rates  between  export  wheat  and  flour.  The  findings  of  fact 
fully  state  the  case,  and  from  them  it  clearly  appears  that  a  dis- 
crimination, and  a  most  grievous  one,  does  exist.  It  needs  no 
argument  to  show  that,  when  the  entire  margin  of  profit  to  the 
American  miller  in  the  grinding  of  export  flour  does  not  exceed 
from  1  to  3  cents  per  hundred  pounds,  a  difference  in  the  freight 
rate  in  favor  of  the  English  miller  amounting  to  from  4  to  11 
cents  per  hundred  pounds  is,  other  things  being  equal,  prohibi- 
tive. The  serious  question  is  whether  that  discrimination  is 
justifiable.         *****«» 

The  carriers  insist  that  the  difference  in  rate  is  justified  first, 
by  water  competition,  and  secondly  by  additional  cost  of  service. 

Water  competition  certainly  limits  during  the  period  of  navi- 
gation, and  to  a  degree  before  the  opening  and  after  the  close  of 
navigation,  the  rates  upon  wheat  and  flour.  Both  the  published 
and  actual  water  rate  on  wheat  has  been  lower  than  upon  flour ; 
we  have  found  from  2  to  4  cents  lower. 

This  water  competition  for  seven  months  of  the  year  is  not 
only  possible  l)ut  actual.  Of  all  the  traffic  leaving  Chicago  by 
regular  line  boats  during  the  period  of  navigation,  30  per  cent 
is  said  to  be  flour  and  the  balance  grain  and  other  commodities. 
It  has  already  been  said  that  water  competition  may  to  an  extent 
be  properly  met  by  the  rail  rate.    The  water  line  does  actually 


EXPORT  AND  DOMESTIC   RATES  521 

fix  these  relative  rates  on  wheat  and  flour,  and  we  think  the 
carriers  are  justified  by  that  competition  in  making,  to  a  de- 
gree at  least,  the  same  difference  which  is  thereby  created.  The 
millers  urge  with  force  that  the  rail  carriers,  by  virtue  of  their 
control  over  the  line  boats  by  which  alone  flour  is  transported, 
unduly  exaggerate  the  difference  in  rate  between  wheat  and 
flour ;  but  the  fact  still  remains  that  water  competition  does 
create  a  substantial  difference  in  those  rates. 

We  have  also  found  that  to  a  limited  extent  the  cost  of  service 
is  greater  in  the  transportation  of  export  flour  than  in  that  of 
export  wheat,  and  for  this  reason  under  the  circumstances  of 
this  case  we  think  that  a  slightly  higher  rate  on  flour  than  on 
wheat  for  export  is  justifiable.  This  is  especially  true  in  view 
of  tlie  fact  that  the  flour  rate  includes  the  delivery  on  shipboard 
while  the  wheat  rate  does  not.  The  rate  from  Chicago  to  New 
York  upon  flour  puts  the  flour  on  board  the  vessel,  whereas  to 
put  export  wheat  on  shipboard  an  additional  charge  of  about 
11  cents  per  bushel  is  made.       ***** 

It  should  perhaps  be  noticed  that,  although  the  rate  upon 
flour  has  been  confessedly  higher  than  upon  wheat  for  many 
years,  the  exportation  of  flour  has  steadily  increased,  being 
3,947,333  barrels  in  1878  and  15,349,943  barrels  in  1898.  The 
increase  for  the  last  six  years  has  not,  however,  been  marked, 
and  exportations  since  1894  have  actually  declined,  having 
been  in  that  year  16,859,533  barrels. 

This  Connnission  is  of  the  opinion  that  public  policy  and  good 
railway  policy  alike  require  the  same  rate  upon  export  wheat 
and  flour.  Such  rates  tend  to  develop  both  the  industries  of  the 
United  States  and  the  traffic  of  the  railways.  We  are  not,  how- 
ever, here  settling  national  or  railroad  policy.  We  are  simply 
administering  the  Act  to  Regulate  Commerce ;  and  in  view  of 
all  conditions  as  we  find  them,  we  do  not  feel  that  chaiging  a 
somewhat  higher  rate  on  flour  than  on  wheat  for  export  is  in 
violation  of  that  statute.  We  do  think  that  the  published  differ- 
ence is  too  wide,  and  that  the  rate  upon  flour  for  export  ought 
not  to  exceed  that  upon  wheat  by  more  than  2  cents  per  hundred 
pounds.  ******* 


XIX 

FREIGHT  CLASSIFICATION 
The  Hatters'  Funs  Case^ 

Peouty,  Commissioner: 

The  complainant  is  engaged  in  the  manufacture  of  hats  under 
the  title  of  the  Pioneer  Hat  Works  at  Wabash,  Indiana,  and  his 
complaint  is  that  "  hatters'  furs  "  and  "  fur  scraps  and  cuttings  " 
are  wrongly  classified,  the  present  classification  of  both  these 
commodities  being  double  first  class,  while  he  insists  that  hat- 
ters' furs  should  be  classified  as  first  class  and  fur  scraps  and 
cuttings  as  second  class.  .  .  . 

Hatters'  furs  is  a  trade  name  applicable  to  the  various  kinds 
of  fur  used  in  the  manufacture  of  hats.  These  furs,  as  sold  to 
the  manufacturer  and  presented  for  transportation,  are  sheared 
from  the  skin,  and  packed  in  paper  bags  containing  three  or  five 
pounds  each,  which  are  then  assembled  in  wooden  cases,  100 
bags  to  the  case.  The  case  thus  weighs  from  three  to  five  hun- 
dred pounds  and  is  in  size  about  36"  x  36"  x  40" ,  containing 
some  30  cu.  ft.  ****** 

The  complainant  testified  that  rabbit  fur  was  the  sort  mostly 
used  by  him  in  the  manufacture  of  hats,  although  he  used  to 
some  extent  nutria,  and  that  the  value  of  the  furs  which  he  used 
was  from  -t  .40  to  '^2.50  per  pound.  The  complainant  makes 
a  medium  grade  of  fur  hats.  More  of  the  higher  priced  furs 
would  probably  enter  into  the  manufacture  of  hats  of  a  higher 
grade.  These  furs,  nutria  and  beaver,  average  in  price  as  high 
as  $6  per  pound,  and  the  price  list  show  that  the  best  grade  of 
beaver  has  at  times  listed  at  $15  per  pound ;  but  it  is  fairly 

1  Decided  November  21,  1901.  Interstate  Commerce  Reports,  Vol.  IX,  pp. 
79-86. 

522 


FREIGHT  CLASSIFICATION  523 

inferable  from  the  testimony  tliat  rabbit  fur  is  the  kind  mainly 
used  in  the  manufacture  of  fur  hats  of  all  grades,  the  more 
expensive  sorts  of  fur  being  used  only  in  comparatively  small 
quantities.  The  testimony  is  not  sufficiently  definite  to  justify 
an  exact  finding,  but  we  think  it  fairly  appears,  and  find,  that 
the  average  value  of  hatters'  furs  would  be  from  $1  to  82  per 
pound,  the  great  bulk  of  that  commodity  presented  for  trans- 
portation being  within  these  limits. 

The  term  fur  scraps  and  cuttings  seems  to  include  the  waste 
produced  in  working  up  fur  pelts  for  various  purposes.  It  em- 
braces not  only  the  waste  from  the  preparation  of  hatters'  furs 
but  also  the  pieces  which  are  left  in  the  manufacture  of  fur 
garments.  These  fur  scraps  are  purchased  by  fur  brokers,  by 
whom  they  are  assorted  into  different  grades  and  sold  to  dif- 
ferent persons  for  various  uses  at  widely  different  prices.  The 
complainant  testified  that  the  fur  scraps  and  cuttings  used  in 
the  manufacture  of  hats  were  worth  from  21  to  40  cents  per 
pound.  The  pieces  of  fur  which  would  also  be  embraced  under 
the  same  title  are  often  worth  much  more  than  this,  sometimes 
as  high  as  -"^1.50  per  pound. 

It  is  extremely  diihcult  to  fix  any  fair  average  value,  but  we 
are  inclined  to  think  that  the  great  bulk  of  fur  scraps  and  cut- 
tings offered  for  transportation  could  not  exceed  in  value  50 
cents  per  pound,  and  that  the  aveiage  would  not  equal  this. 
Fur  scraps  and  cuttings  are  transported  in  cases,  bags  or  bales 
weighing  from  450  to  500  pounds.  The  proportion  between 
bulk  and  weight  is  about  the  same  as  with  hatters'  furs. 

Manufactured  hats  are  classified  first  class  and  the  com- 
plainant insisted  that  this  was  a  discrimination  against  the  raw 
material. 

Upon  this  point  testimony  was  given  by  both  parties  as  to 
comparative  value  and  desiral)i]ity  from  a  traflic  standpoint  of 
the  raw  material  and  the  finished  product. 

Hatters'  furs  are  put  through  three  processes  in  preparation 
for  use  in  the  manufacture  of  hats  and  slirink  al)out  two  ounces 
in  the  pound.  Fur  scraps  and  cuttings  pass  tlirougli  from  twelve 
to  eighteen  processes  and  only  from  10  to  33-^  per  cent  in  weight 


524  KAILWAV    1'K(»1'.IJ:.MS 

of  usable  fur  is  obtained.  In  the  manufacture  of  the  liat  itself 
the  average  is  still  further  shrunk. 

Ilats  are  shipped  in  eases  weighing  about  sixty  pounds  to  the 
ease  and  are  from  two  to  three  times  more  bulky  than  hatters' 
furs  or  fur  scraps  and  cuttings.  The  complainant  also  insisted 
that  they  were  much  more  valuable  by  the  pound.  This  was 
denied  by  the  defendants  who  claimed  that  the  average  value  of  all 
hats  was  less  by  the  pound  than  the  average  value  of  hatters'  furs. 

Hats  other  than  straw  are  sometimes  made  of  other  material 
besides  fur,  but  the  complainant  testified  that  the  proportion  of 
fur  hats  to  other  hats  would  be  fifty  to  one.  Caps  are  made  of 
cloth.  The  average  value  of  fur  hats  per  pound  must  greatly  ex- 
ceed the  average  value  of  the  hatters'  furs  which  enter  into  their 
construction,  and  without  doubt  this  is  true  of  all  hats  other  than 
straw.  It  would  be  unprofitable  to  hazard  a  guess  as  to  whether 
this  might  or  might  not  be  the  case  if  straw  hats  were  included. 

The  complainant  further  insisted  that  hatters'  furs  and  fur 
scraps  and  cuttings  were  a  more  desirable  kind  of  traffic  than 
hats  and  caps  for  the  reason  that  they  were  less  liable  to  loss  or 
damage  in  transit.  From  the  very  nature  of  the  articles  it  is 
almost  impossible  that  hatters'  furs  or  fur  scraps  and  cuttings 
should  be  stolen.  They  are  not-  combustible  and  not  easily 
injured  by  water  or  by  jamming;  and  any  injury  from  these 
causes  would  be  confined  to  what  was  actually  injured.  Upon 
the  contrary  a  hat  is  ready  to  wear  and  this  is  an  inducement 
to  abstract  one  from  a  case.  Injury  to  a  small  part  of  a  hat 
spoils  the  entire  article.  The  complainant  testified  that  in  the 
whole  course  of  his  business  he  had  never  made  a  claim  for 
damage  to  hatters'  furs  or  fur  scraps  in  transit  while  he  had 
frequently  had  occasion  to  do  so  in  case  of  hats. 

The  complainant  is  the  only  manufacturer  of  hats  located  in 
the  West.  All  his  competitors  are  upon  the  Atlantic  seaboard 
in  near  proximity  to  New  York.  Most  of  these  hatters'  furs 
are  imported  and  are  distributed  from  the  port  of  New  York. 
The  complainant  claims  that  by  reason  of  the  higher  rate  upon 
raw  material  than  upon  the  manufactured  product  he  is  placed 
at  a  disadvantage  in  comparison  with  the  eastern  manufacturer. 


FREIGHT  CLASSIFICATION  525 

The  market  of  the  complainant  is  the  whole  United  States 
west  of  Pittsburg  and  in  all  that  territory  he  competes  with  the 
eastern  manufacturer.  The  exact  points  in  the  East  at  which 
these  competitors  are  located  did  not  appear,  and  it  is  not  there- 
fore possible  to  make  any  exact  comparison  of  rates  ;  but  gener- 
ally speaking  the  rate  from  these  eastern  points  is  that  of  Boston 
or  New  York.  There  is  considerable  territory,  like  the  Pacific 
Coast,  to  which  rates  upon  hats  are  the  same  from  the  Atlantic 
seaboard  as  from  Wabash,  and  in  nearly  all  territory  the  sum  of 
the  rates,  upon  the  same  class,  from  New  York  to  Wabash  and 
from  Wabash  to  the  point  of  consumption  is  considerably  greater 
than  the  rate  from  New  York  to  the  last-named  destination. 

Some  question  was  raised  as  to  the  amount  of  complainant's 
shipments  per  year.  Mr.  Gill,  Chairman  of  the  Official  Clas- 
sification Committee,  stated  that  a  compilation  of  these  ship- 
ments had  been  made  and  that  they  aggregated  about  150,000 
pounds  per  jeAT.  The  rate  from  New  York  to  Wabash  is  72 
cents,  first  class,  and  Ji^l.44  double  first  class.  If,  therefore,  the 
complamant  is  right  in  his  contention  as  to  wdiat  the  correct 
classification  should  be  he  is  damaged  to  the  extent  of  some- 
thing more  than  81000  annually  upon  the  statement  of  the 
defendants. 

The  complainant  also  urged  that  the  classification  in  question 
created  undue  prejudice  against  his  commodities  as  compared 
with  dry  goods,  boots  and  shoes  and  many  other  articles  classi- 
fied as  first  class. 

About  250  articles  are  classified  as  double  first  class  by  the 
Official  Classification.  Generally  speaking,  such  articles  offer 
some  special  reason  for  the  classification,  like  unusual  bulk, 
extraordinary  risk,  or  something  of  that  nature.  An  examina- 
tion of  the  entire  list  fails  to  disclose  a  single  commodity  which 
affords  as  desirable  traffic  as  the  one  under  consideration,  and 
in  only  three  or  four  instances  is  there  any  approach  to  this. 
Something  like  1500  articles  are  classified  as  first  class.  We 
have  examined  this  list  and  our  conclusion  is  tliat  but  very  few 
of  them  are  as  desirable  freight  as  hatters'  furs  and  fur  scraps 
and  cuttings,  and  that  none  of  them  are  more  so. 


520  KAIL  WAV    PKor.LEMS 

No  special  reasons  were  shown  why  these  two  commodities 
should  pay  a  higher  rate  than  other  similar  commodities. 


Conclusions 

Upon  these  facts  the  complainant  contends  that  the  present 
classification  of  hatters'  furs  and  fur  scraps  and  cuttings  is  in 
violation  of  the  Act  to  Regulate  Commerce.  His  position  is  that 
in  the  forming  of  a  classification  a  proper  relation  between  dif- 
ferent articles  should  be  preserved  and  that  when  th^se  articles 
under  consideration  are  compared  with  otliers  analogous  from  a 
transportation  standpoint  it  appears  that  this  present  classifica- 
tion is  too  high. 

To  this  the  defendant  replies  that  one  commodity  should  not 
be  compared  with  another  unless  the  two  are  competitive ;  hat- 
ters' furs  cannot  therefore  be  tested  by  dry  goods  or  boots  and 
shoes.  Mr.  Gill,  Chairman  of  the  Official  Classification  Com- 
mittee, speaking  both  as  a  witness  and  as  counsel  for  the  defend- 
ants, asserts  that  the  main  element  in  the  determination  of  a 
classification  is  "  value  of  service  "  or  "  what  the  traffic  will  bear." 

There  is  undoubtedly  much,  we  do  not  find  it  necessary  to  now 
inquire  how  much,  truth  in  this  contention  of  Mr.  Gill ;  but 
it  cannot  be  admitted  that  those  are  the  only  considerations  to 
be  observed.  It  has  been  repeatedly  claimed  by  carriers  and  re- 
peatedly held  by  the  Commission  that  in  the  forming  of  a  classi- 
fication bulk,  value,  liability  to  damage,  and  similar  elements 
affecting  the  desirability  of  the  traffic  should  be  considered,  and 
that  analogous  articles  should  ordinarily  be  placed  in  the  same 
class.  Warner  v.  Mw  York  C.  cf  H.  R.  R.  Co.,  4  I.  C.  C.  Rep. 
32,  3  Inters.  Com.  Rep.  74 ;  Harvard  Co.  v.  Penyisylvania  Co., 
4  I.  C.  C.  Rep.  212,  3  Inters.  Com.  Rep.  257  ;  Page  v.  Delaware, 
L.  ^  W.  R.  Co.,  6  I.  C.  C.  Rep.  548.  Manifestly  in  determin- 
ing what  freight  rates  shall  be  borne  by  different  commodities  an 
attempt  should  be  made  to  obtain  a  fair  relation  between  those 
commodities,  and  a  classification  which  utterly  ignores  all  con- 
siderations of  this  kind  or  which  utterly  fails  to  give  due  weight 
to  such  considerations  is  uniust  and  unreasonable. 


FEEIGHT  CLASSIFICATION  527 

The  present  case  falls  within  this  rule.  Here  are  two  commod- 
ities, not  bulky,  offered  for  transportation  in  packages  of  con- 
venient size,  of  not  great  value,  and  with  practically  no  liability 
to  loss  or  damage  in  transit.  It  has  been  found  that  hardly 
an  article  among  all  those  in  first  class  is  so  desirable  traffic  as 
they  are,  and  still  these  commodities  are  classified  as  double  first 
class.  In  our  opinion  this  is  unlawful.  They  should  not  be 
classified  higher  than  first  class.  We  should  be  inclined  to  say 
that  fur  scraps  and  cuttings  must  not  be  rated  higher  than  sec- 
ond class  were  it  not  for  the  claim  of  the  defendants  that  this 
would  lead  to  fraud  in  the  billing  of  furs  as  fur  scraps. 

There  is  another  ground  upon  which  the  same  conclusion  must 
be  reached.  Mr.  Gill  himself  admits  that  when  two  articles  are 
competitive  no  preference  should  be  shown  in  the  freight  rate. 
Hatters'  fur,  the  raw  material,  does  compete  in  a  way  with  hats, 
the  finished  product,  and  we  do  not  think  that,  under  the  cir- 
cumstances of  this  case,  the  rate  upon  the  raw  material  ought 
to  be  greater  than  that  upon  the  finished  product. 

The  complainant  is  located  at  Wabash,  Ind,,  and  is  the  only 
manufacturer  of  hats  west  of  the  Atlantic  seaboard.  INIost  of 
his  competitors  are  in  the  immediate  vicinity  of  New  York  from 
whence  supplies  of  hatters'  furs  and  fur  scraps  and  cuttings  are 
almost  entirely  drawn.  For  the  purpose  of  noting  the  effect  upon 
the  complainant,  let  us  assume  that  his  competitor  is  located  in 
New  York  itself. 

The  complainant  pays  upon  his  i-aw  material  double  first 
class,  and  that  raw  material  shrinks  about  one  half  in  process  of 
manufacture.  His  competitor  pays  upon  the  finished  product 
first  class  or  just  one  half  the  rate  paid  by  the  complainant  upon 
the  raw  material.  The  item  of  freight,  therefore,  costs  the  com- 
plainant at  his  factory  three  or  four  times  what  it  costs  his 
competitor  in  laying  down  the  same  hat  at  that  point. 

The  complainant  sells  exclusively  in  territory  west  of  Pitts- 
burg and  the  defendants  urge  that  he  has  an  advantage  over  his 
competitors  in  freights  by  reason  of  closer  proximity  to  the  mar- 
ket. But  a  moment's  consideration  will  sliow  that  at  points 
other  than  Wabash  the  discrimination  is  even  greater  than  at  the 


528  RAU.WAV   TIIOI'.LKMS 

complainant's  factory.  In  some  at  least  of  this  competitive  ter- 
ritory rates  from  the  Atlantic  seaboard  and  Wabash  are  the 
same,  so  that  the  complainant  pays  freight  upon  the  raw  mate- 
rial in  addition  to  the  same  rate  as  the  eastern  manufacturer 
upon  the  linished  hat.  In  none  of  this  competitive  territory 
probably  is  the  rate  from  the  east  as  great  as  the  rate  to  Wal)asli 
plus  the  rate  from  Wabash  to  the  point  of  consumption. 

In  determining  the  relative  amounts  paid  upon  the  raw  mate- 
rial and  the  linished  product  we  have  disregarded  the  weight  of 
the  cases.  This  is  somewhat  more  in  the  case  of  hats  than  hat- 
ters' furs,  but  there  is  no  definite  testimony  upon  this  point. 

The  defendants  say  that  the  complainant  is  the  only  person 
who  is  finding  fault  with  this  classification.  Were  this  true, 
and  without  apparent  reason,  it  would  be  no  ground  for  denying 
him  the  relief  to  which  he  is  entitled  ;  but  here  the  reason  is  suf- 
ficiently obvious  since  the  discrimination  is  to  the  advantage  of 
every  other  manufacturer  as  against  the  complainant. 

Neither  is  this  a  case,  as  the  defendants  intimate,  where  the 
matter  is  of  so  slight  consequence  that  it  should  not  be  inquired 
into  nor  redressed.  The  law  has  a  maxim  that  it  will  not  con- 
cern itself  with  trifles  and  this  perhaps  ought  to  be  all  the  more 
true  of  traffic  conditions  where  there  can  be  no  exact  rule;  but  in 
the  case  before  us  the  excess  paid  by  the  complainants  according 
to  the  statement  of  the  defendants  amounts  to  $1000  a  year,  which 
can  hardly  be  called  a  trifle  to  the  complainant,  however  it  might 
be  with  the  defendants.  We  think  the  present  adjustment  be- 
tween the  raw  material  and  the  finished  product  is  unjust  and 
unduly  prejudicial  to  the  complainant  and  that  this  should  be 
corrected.  ******* 

The  fixing  of  a  classification  determines  the  relation  of  rates, 
not  the  rate  itself.  If  we  transfer  these  two  commodities  from 
double  first  class  to  first  class,  we  do  not  thereby  determine  the 
rate  under  which  they  shall  move  in  the  future.  The  revenues 
of  the  defendants  are  not  necessarily  diminished  since  they  may 
advance  rates  applicable  to  these  classes.  In  Danville  v.  South- 
ern li.  Co.^  8  I.  C.  C.  Rep.  409,  the  right  of  determining  the 
relation  in  rates  which  should  exist  between  two  localities  was 


FREIGHT  CLASSIFICATION  529 

exercised  and  the  same  principle  must  apply  to  the  relation 
between  two  commodities.  In  that  case  it  was  said  that  the 
authority  was  not  clear,  but  having  exercised  it  then,  and  believ- 
ing that  a  plain  distinction  exists  between  fixing  a  rate  and 
determining  a  relation  in  rates,  we  shall  continue  to  do  so  until 
the  Supreme  Court  of  the  United  States  has  held  otherwise. 


XX 

now  THE  STATES  MAKE  INTERSTATE  RATES  i 

THE  widespread  efforts  of  state  legislatures  and  railroad  com- 
missions within  the  past  two  years  to  reduce  railroad  rates 
have  presented  many  interesting  phases  to  public  observation. 
The  extent  and  severity  of  the  proposed  reductions,  the  novel 
expedients  adopted  to  prevent  or  to  make  difficult  a  review  of 
the  state  action  in  the  federal  courts,  the  resulting  conflict  of  ju- 
dicial authority  and  the  recent  decision  of  the  Supreme  Court  of 
the  United  States  holding  these  expedients  unconstitutional  have 
kept  the  movement  constantly  in  the  public  mind.  Out  of  the 
many  questions  which  discussion  of  the  situation  has  evolved 
none  are  more  interesting  or  important  than  those  relating  to 
the  effect  of  state-made  rates  upon  rates  for  interstate  transpor- 
tation. It  is  the  purpose  of  this  article  not  to  show  that  the 
rate-makmg  power  of  the  states  should  be  diminished  or  de- 
stroyed, or  that  this  object,  if  desirable,  can  or  cannot  be  accom- 
plished under  the  federal  constitution,  but  merely  to  state  and 
to  illustrate  the  proposition  that,  in  fact,  the  states  do  make 
interstate  rates. 

The  great  movements  of  traffic  in  this  country  are  eastward 
and  westward.  The  volume  of  tlie  westward  movement  has 
always  been  high-class  merchandise,  —  dry  goods,  wearing  ap- 
parel, groceries,  hardware,  and  like  articles.  Formerly  this  was 
all  produced  in  the  East  or  imported  through  Atlantic  ports ;  it 
is  only  within  recent  years  that  the  larger  cities  in  the  West  have 
become  manufacturing  centers. 

When  the  evolution  of  our  rate  fabric  began  New  York, 
Boston,   Pliihidelphia,  and  Baltimore  were  the  bases  of  supply. 

1  By  Robert  Mather.  A  paper  prepared  for  the  American  Academy  of  Polit- 
ical Science,  and  published  in  its  AnnulH,  1908.  By  permission.  Much  of  the 
matter  and  all  the  maps  for  this  article  were  prepared  by  Mr.  Theodore  Brent, 
of  the  Traffic  Department,  Bock  Island-Frisco  Lines,  Chicago. 

530 


INTEKSTATE  EATES  531 

Chicago,  St.  Louis,  St.  Paul,  Omaha,  and  Kansas  City  owe  their 
development  as  trade  centers  primarily  to  strategic  location  at 
the  head  of  navigation,  or  at  points  where  the  trans-continental 
trails  left  the  watercourses  for  the  West,  Northwest,  and  South- 
west. They  commenced  as  outfitting  points  for  prospectors  and 
settlers ;  their  business  was  that  of  distributing  through  the  new 
western  country  the  articles  of  commerce  manufactured  m  or 
imported  through  the  East ;  and  that  still  constitutes  a  large 
part  of  their  trade. 

When  railroads  found  their  way  to  Chicago  and  St.  Louis 
their  rates  were  fixed  largely  by  the  water  competition  which 
met  them  on  their  arrival.  Gradually  railroads  were  constructed 
westward  from  these  points  and,  as  they  reached  common  terri- 
tory, the  force  of  competition  began  to  be  felt.  Intense  rivalry 
developed  between  the  distributing  houses  of  Cliicago  and  St. 
Louis,  and  pressure  was  brought  to  bear  upon  the  railroads,  both 
East  and  West,  to  keep  the  rate  fabric  so  adjusted  that  goods, 
stored  in  and  distributed  from  either  city,  might  be  laid  down 
at  any  of  the  Missouri  river  pomts  at  substantially  the  same 
freight  cost.  The  class  rates  from  New  York  to  Chicago  thus 
became  the  basis  of  measurement  for  all  class  rates.  The  St. 
Louis  rate  was  a  fixed  per  cent  higher,  approximating  the  differ- 
ence in  the  cost  of  reaching  that  point  by  water.  The  rates 
between  the  Mississippi  river  and  Chicago  on  the  one  hand  and 
the  Missouri  river  on  the  other  were  fixed  not  at  what  would 
be  a  reasonable  rate  for  the  distance,  but  at  what  it  was  neces- 
sary to  maintain  in  order  that  St.  Louis  and  the  lines  leadmg 
through  St.  Louis  might  compete  with  Chicago  for  the  expanding 
business  of  Kansas  City,  Atchison,  St.  Josepli,  and  Omaha. 

In  the  territory  west  of  the  Missouri  river  the  same  process 
has  been  repeated,  and  rates  are  maintained  in  such  relation  not 
only  that  Kansas  City,  St.  Joscj)]),  and  Omaha  may  compete 
with  each  other,  but  that  goods  distril)utcd  from  St.  Louis  and 
Chicago,  as  well  as  from  the  eastern  cities,  may  be  handled 
through  either  Kansas  City,  St.  Joseph,  or  Omaha  and  laid  down 
at  the  several  consuming  points  at  practically  the  same  freiglit 
cost.     In   the  Northwest   this  same   competitive   adjustment   is 


532  KAll,^^A^■  I'Koi'.lkms 

m;iiuiaiiu'(l  hrtwcfii  ("liira^d,  Duliilli,  Minneapolis,  and  St.  Paul. 
In  I  lie  Soutliwcsl,  Ciiicano,  St.  Louis,  und  Kansas  Ciiy  must  be 
kv[)\.  on  an  even  keel,  and  when  Texas  is  reached,  the  whole 
adjustment  is  modified  to  meet  the  competition  of  coastwise 
steamers  plyin^'  from  New  York  to  (ialveston.  To  Colorado 
and  Utah,  the  routes  tlirough  all  these  gateways  are  kept  in 
constant  adjustment,  and  the  rates  so  arranged  tliat  Denver  and 
Pueblo  are  enabled  to  do  a  distributing  bushiess. , 

What  is  true  of  westbound  merchandise  is  equally  true  of  the 
movement  to  the  East  of  the  great  staples  raised  in  the  West.- 
The  grain  territory  is  so  divided  and  rates  are  so  made  that 
grain  may  move  freely  to  the  Mississippi  river,  the  Lakes,  and 
the  Gulf,  through  the  great  storage  centers  of  Minneapolis, 
Dulutli,  Chicago,  St.  Louis,  Omaha,  and  Kansas  City.  In  like 
manner  live-stock  rates  are  so  arranged  that  the  traHic  may 
move  freely  to  the  rival  packing  centers  of  Kansas  City,  St. 
Joseph,  Omaha,  St.  Paul,  Chicago,  and  St.  Louis. 

These  rate  relations  are  not  the  work  of  the  traflfic  depart- 
ments of  the  railroads.  They  do  not  exist  by  virtue  of  acts  of 
legislatures  or  of  orders  of  commissions.  They  are  the  resultants 
of  the  commercial  growth  of  the  country.  Trade  is  established 
along  these  lines ;  industries  and  communities  are  founded  on 
the  basis  of  these  adjustments,  and  their  existence  and  prosperity 
depend  upon  the  continuance  of  these  rate  relations.  They  are 
the  controlling  facts  in  all  rate  disputes  —  more  stubborn  than 
distance  and  as  immovable  as  mountams. 

There  is  hardly  a  rate  on  any  article  of  commerce  but  feels 
the  force  of  these  competitive  conditions.  They  absolutely  dic- 
tate the  traffic  policy  of  the  railroads  operating  in  the  territory 
affected  by  them.  The  carrier  makes  no  rates  that  are  not  effec- 
tively molded  l)y  these  conditions,  and  the  rate-making  power 
of  the  Interstate  Commerce  Commission  itself  cannot  ignore 
them.  The  only  rate-regulating  body  that  makes  rates  without 
reference  to  these  commercial  conditions  is  the  legislature  or 
the  railroad  commission  of  a  single  state.  Its  field  of  operations 
includes  but  a  fraction  of  the  territory  whose  traffic  is  controlled 
by  these  conditions ;  contains  but  few  of  the  larger  distributing 


INTERSTATE  RATES  533 

centers  which  compete  for  that  traffic ;  and  is  usually  circum- 
scribed, either  wholly  or  in  part,  by  imaginary  boundaries  fixed 
without  regard  to  factors  which  exercise  controlhng  influence 
upon  the  trend  of  traffic  and  of  rates.  The  influence  of  lakes, 
of  rivers  and  canals,  the  competition  of  rival  markets,  the  rela- 
tion between  manufacturer  and  dealer,  and  other  like  forces  that, 
in  the  making  of  rates,  confront  the  traffic  officer  of  an  mterstate 
railroad  and  the  Interstate  Commerce  Commission  itself,  enter 
but  slightly;  if  at  all,  into  the  calculations  of  the  state.  In  every 
case,  in  the  exercise  of  its  rate-making  power,  distance  is  the  one 
factor  given  serious  consideration  ;  and  the  result  of  its  labors  is 
invariably  the  production  of  a  distance  tariff. 

This  state  distance  tariff,  is,  on  its  face,  a  simple  and  a  harm- 
less thmg.  The  right  of  the  state  to  make  it  and  to  change  it  at 
its  will  seems  to  be  amply  buttressed  by  the  conceded  principle 
of  law  that  the  power  of  Congress  over  mterstate  commerce 
leaves  untouched  the  power  of  the  states  to  regulate  their  purely 
internal  commerce.  And  no  simpler  or  less  obnoxious  method 
of  exercising  that  power  would  seem  possible  than  to  prescribe 
the  rates  at  which  traffic  shall  move  from  pomt  to  pomt  witliui 
the  state. 

But  when  the  traffic  officer  of  an  interstate  raih-oad  comes  to 
apply  this  state  distance  tariff',  made  for  state  use  on  purely 
local  considerations,  to  the  traffic  that  actually  moves  over  his 
rails,  he  finds  that  he  cannot  confine  its  influence  to  traffic  within 
the  state,  and  that,  against  his  will  and  without  his  action,  it 
readjusts  his  rates  into  and  out  of  and  through  the  state,  and 
determines  his  revenue  on  tratlHc  that  never  traverses  the  borders 
of  the  state.  This  is  illustrated  by  the  action  of  the  following 
states : 

Missouri  and  Iowa 

Missouri  has  a  far-reaching  control  over  interstate  rates  by 
reason  of  the  situation  of  the  state  at  the  point  of  least  distance 
between  the  Mississippi  river  —  the  basmg  Ime  for  rates  from 
the  East  —  and  the  Missouri  river,  the  base  line  for  rates  to 
the  West. 


534 


RAILW  A\'    IMJOl'.LEMS 


ST.  Jose 


Kan5/\5  City 


Hannibal 


There  are  three  faetcirs  whicli  i^o  to  make  up  tlie  rates  from 
the  Kast  to  the  western  territory,  —  whether  or  not  they  are 
puhlislied  as  through  rates,  —  namely,  the  rate  from  the  sea- 
l)(>ai(l  [o  the  Mississippi  river  or  Chicago;  the  rate  from  the 
hitter  base  Une  to  the  Missouri  river;  and  the  rate  west  of  the 
Missouri  river.  Reduce  the  rate  between  the  Mississippi  river 
and  the  Missouri  river  and  you  rechice  the  rates  on  all  business 
either  locally  or  through  or  beyond  these  base  lines. 

The  tirst-class  rate  between  the  Mississippi  and  Missouri  rivers 
practically  determines  the  interstate  rates  on  all  classified  articles 

moving  between  the 
East  and  West.  It  is 
at  present  60  cents 
per  100  pounds,  this 
being  the  figure  fixed 
by  the  Missouri  Rail- 
road and  Warehouse 
Commission  as  a  rea- 
sonable maximum  rate 
for  the  short-line  haul 
of  approximately  200 
miles  across  the  state 
from  the  Mississippi 
to  the  Missouri  —  the 
distance  from  Hanni- 
bal to  St.  Joseph  being  196  miles,  and  from  Hannibal  to  Kansas 
City,  199  miles.    Note  the  chart. 

Though  this  rate  is  based  on  the  distance  of  200  miles,  com- 
petitive conditions  outside  the  state  apply  it  at  once  to  all  hauls 
across  the  state,  no  matter  what  their  distance.  The  short  line 
from  St.  Louis  to  St.  Joseph  is  302  miles,  and  lines  operating 
between  those  cities  would  be  privileged,  under  the  commission's 
maximum  scale,  to  charge  74  cents,  first  class.  The  short  line 
between  St.  Louis  and  Kansas  City  is  277  miles,  for  which  dis- 
tance the  commission's  scale  is  71  cents,  first  class.  But  here 
considerations  enter  which  are  entirely  outside  the  horizon  of  the 
Missouri  commission.    The  rates  from  New  York  to  Hannibal 


KsTERSTATE  EATES 


535 


St.  Joseph 


MN5A5CIT 


HANNIBAL 


St.  Louis 


and  St.  Louis  are  the  same.  There  are  routes  leading  from 
New  York  to  St.  Joseph  and  Kansas  City,  tlu-ough  both  Hannibal 
and  St.  Louis.  Kansas  City  and  St.  Joseph  compete  in  the  same 
trade  territory,  and  the  rates  to  both  points  from  New  York 
must  be  kept  the  same  thi'ough  all  gateways.  Consequently  the 
commission's  maximum  rate  for  the  shortest  distance  becomes 
the  rate  between  all  four  crossings. 

'Thus  the  element  of  distance  even  between  points  within 
the  state  is  immediately  modified  by  outside  forces,  controllmg 
with  the  carriers, 
but  which  exerted  no 
influence  upon  the 
commission  when  it 
fixed  the  nominal 
measure  of  the  rates. 

Just  north  of  INIis- 
souri  lies  the  State 
of  Iowa.  To  the  un- 
tutored mind  there 
would  seem  to  be 
no  reason  why  trafiic 
of  the  same  class 
should  move  within 
the  State  of  Iowa  for 
a  less  charge  than 
within  the  State  of 

Missouri.  Yet  the  maximum  charge  under  the  Iowa  distance  tariff 
for  hauling  first-class  merchandise  200  miles  is  40  cents,  as  against 
60  cents  fixed  by  the  Missouri  tariff.  The  railroads  in  Iowa  must 
haul  the  same  class  of  merchandise  350  miles  to  be  entitled  to 
charge  60  cents ;  but,  significantly  enough,  the  350  miles  measure 
the  distance  in  Iowa  between  the  Mississippi  and  Missouri  rivers,  so 
that  the  rate  between  the  two  base  lines  is  the  same  in  both  states. 
Should  Missouri  adopt  the  Iowa  scale,  the  Missouri  rate  from  the 
Mississippi  river  to  the  Missouri  river,  between  all  the  points  in 
Missouri  that  we  have  been  considering,  would,  for  the  reasons 
already  given,  at  once  become  40  cents,  regardless  of  distance. 


Italic  Figures  =  Actual  Rates 

Roman  Figures  =  Missouri  Maximum  Rates 


5:U) 


1;A1L\VA\'    IMJOl'.LKMS 


St.  Jose  p 


Tlic  t't'l't'ct  williiii  the  Stiitc  of  Alissoiii-i,  ImwcNcr,  is  only  tlic 
lu'Liiiiiiiiii;-.  'V\\c  rate  hrtwi'i'ii  tlu'  Mississipi)!  and  Alissouri  rivers 
heiui;'.  as  previously  explained,  one  of  three  taetors  of  a  throuuli 
adjiisiuieui  fioni  points  of  pi-odiict ion  in  the  Kast ;  tlu;  rates  fi'oiu 
the  East  to  all  Mississippi  river  erossino-s  beiiio-  tlu;  same  ;  there 
being  e()ni[)etitive  routes  from  the  East  to  all  Missouri  river  points 
passinj^"  throu^'h  all  of  these  Mississippi  river  crossino's  ;  and  the 

merchants  and  maiui- 
facturers  in  the  Mis- 
sissippi river  eities 
maintaining- trade  re- 
lations with  all  of  the 
Missouri  river  cities 
and  with  the  terri- 
tory reaeluHl  through 
them ;  it  follows  that 
the  rate  between  Du- 
buque, Iowa,  and 
Kansas  City,  Mis- 
souri, cannot  be 
higher  than  the  rate 
between  Dubuque 
and  Council  Bluffs 
(both  points  within 


Kansas  City  jos;^2j  ^*^gQ  "[^ 


St.  L0UI5 


SiMA I.I,  Roman  FHiUUES  =  T{ATKSPEKMISSIBLE,  BASED 

ON  Actual  Mileage,  Iowa  Scale  applied  in 
Missouri. 


Italk;  Figukes  =  Rates  Cakkikks  WOULD  actually      the    state    of   lowa)  " 

HE    FORCED   TO   CIIAHCK    1!Y   RkASON   OP    OuTSIDK  ,i  , 

T,  nor    can     the     rate 

Forces 
Large  Ro.man  Fi<;rREs  =  Pi{ESENT  R.\TES  between     St.    Louis, 

Missouri,  and  Omaha, 
Nel)raska,  be  higher  than  the  rate  between  St.  Louis  and  Kansas 
City  or  between  St.  Louis  and  St.  Joseph  (movemtMits  wholly 
within  the  State  of  Missouri). 

Thus  from  the  act  of  the  Missouri  commission  in  reducing'  its 
distance  tariff  from  GO  cents  to  40  cents  for  200  miles,  the  fol- 
lowing results  directly  flow : 

(a)  The  local  Missouri  rate  from  points  on  the  Mississippi  river 
to  pomts  on  the  Missouri  river,  I'egardless  of  mileage,  is  reduced 
from  60  cents  to  40  cents ; 


INTERSTATE  EATES  537 

(b)  The  local  Iowa  rate  from  points  on  the  Mississippi  river 
to  points  on  the  Missouri  river  (say  Clinton  to  Council  Bluffs, 
350  miles)  is  reduced  from  60  cents  to  40  cents ; 

(c)  The  interstate  rate  from  points  on  the  Mississippi  river  in 
Missouri  to  points  on  the  ISIissouri  river  in  Iowa  or  Nebraska 
(say  St.  Louis  to  Council  Bluffs  or  Omaha)  is  reduced ; 

(d)  The  interstate  rate  from  points  on  the  Missouri  river  in 
Missouri  to  points  on  the  Mississippi  river  in  Iowa  (say  Kansas 
City  to  Davenport)  is  reduced. 

Not  only  this,  but  this  Missouri  commission  rate  for  200  miles 
fixes  the  maximum  rate  which  the  Missouri  Pacific  Railway  may 
charge  for  its  haul  of  488  miles  between  St.  Louis  and  Omaha, 
through  jVIissouri,  Kansas,  and  Nebraska ;  and  in  like  manner 
the  rate  of  the  Illinois  Central  Railroad  for  its  haul  of  703  miles 
between  the  same  points,  through  the  States  of  Missouri,  Illinois, 
and  Iowa.    See  the  map  [p.  538]. 

Thus,  within  the  territory  inclosed  by  the  Illinois  Central, 
Missouri  Pacific,  and  Rock  Island  as  outlined  on  the  map, 
any  reduction  made  by  the  Missouri  commission  in  the  class 
rates  for  the  200-mile  distance  between  Hannibal,  Missouri, 
and  Kansas  City,  Missouri,  has  the  effect  of  bringing  all  rates 
to  the  level  so  fixed,  not  only  between  the  crossings  them- 
selves but,  with  very  slight  exceptions,  between  all  intermediate 
points. 

This,  again,  is  but  a  preliminary  glimpse  at  the  inevitable 
results  of  this  action  of  the  Missouri  State  Commission. 

The  first-class  rate  from  Chicago  to  the  Missouri  river  has  for 
many  years  been  20  cents  per  100  pounds  higher  than  the  rate 
from  the  Mississippi  river.  The  competitive  adjustment  would 
require  that  there  be  no  greater  difference  under  tlie  new  scale. 
Indeed,  the  rates  from  the  seaboard  to  Chicago  and  the  Missis- 
sippi river  remaining  as  at  present,  it  is  doubtful  if  Chicago  and 
the  routes  througli  Chi('ago  could  compete  should  the  present 
arbitrary  difference  be  maintained  under  the  reduced  adjustment. 
The  present  rate  of  80  cents,  first  class,  from  Chicago,  is  one- 
third  higher  than  the  rate  from  the  Mississippi  to  tlie  Missouri 
river.    It  is  pr(jbuble  thai  iioi  more  tliau  one-third  greater  would 


Omaha 


Neb.Cit\Y 


Auburn 


JUBUQUE 

Freerort 

Clinton 

ave n  port 


/\TCHI50N 

Leave  NWORTi 
Kansas  City" 


Rock  ISLAND  fte 


538 


INTERSTATE  EATES  539 

be  practicable  under  the  lowered  scale,  which  would  make  the 
first-class  rate  from  Chicago  54  cents  per  100  pounds. 

Peoria  must  be  maintained  at  one  half  the  difference  between 
Chicago  and  the  Mississippi  river.  Milwaukee  must  be  kept  on 
the  same  rate  basis  as  Chicago.  The  rates  from  Minneapohs  and 
St.  Paul  nuist  be  kept  the  same  as  Chicago  to  the  Upper  Mis- 
souri river  crossings  (Omaha,  Council  Bluffs,  and  Nebraska  City), 
and  5  cents  higher  than  Chicago  to  the  lower  crossings  (St.  Joseph, 
Atchison,  Leavenworth,  and  Kansas  City).  •  Duluth  takes  fixed 
arbitraries  above  St.  Paul.  The  intervening  territory  in  Wiscon- 
sin, between  Milwaukee  and  St.  Paul,  is  built  on  arbitraries  over 
either  Chicago,  Milwaukee,  or  St.  Paul,  and  would  call  for  read- 
justment accordmgly.  From  JNIemphis,  Tennessee,  not  higher  than 
Chicago  rates  can  be  mamtained  to  Lower  Missouri  river  crossings, 
and  to  the  upper  crossings  the  first-class  rate  from  Memphis  can- 
not be  more  than  two  cents  higher  than  Chicago.  To  Sioux  City 
the  rate  from  Chicago,  St.  Louis,  and  Peoria  must  be  kept  the  same 
as  from  Cliicago  to  Omaha.  The  first-class  rate  from  Memphis  to 
Sioux  City  is  to-day  30  cents  higher,  and  from  Mmneapolis  and 
St.  Paul  20  cents  less,  than  from  Chicago  to  Sioux  City,  and  the 
same  percentage  relation  must  be  maintained  on  the  lower  scale. 

The  immediate  result,  then,  of  the  fixing  by  the  INIissouri  com- 
mission of  a  maximum  charge  of  40  cents,  first  class,  for  the  dis- 
tance of  200  miles  between  Hannibal,  Missouri,  and  Kansas  City, 
Missouri,  is  to  fix  the  rates  for  all  routes  shown  on  the  map 
[p.  540]  of  what  is  termed  Western  Trunk  Line  territory. 

The  foregoing  outline  illustrates  only  the  adjustment  of  first- 
class  rates.  In  Western  Classification  territory  there  are  five 
numbered  and  five  lettered  classes,  and  the  other  classes  all  bear 
a  certain  percentage  relation  to  the  first-class  rates.  This  is  true 
to  the  extent  that  any  considerable  reduction  in  the  rate  on  first 
class  involves  necessary  proportionate  reductions  in  the  rates  on 
other  classes,  the  severity  of  any  such  reduction  lessening,  of 
course,  as  the  rates  themselves  grow  less  ;  but  the  rates  on  all 
classes  must  go  down  if  one  goes  down,  so  that  the  same  fixed 
relation  between  the  classes  may  be  maintained  on  the  lower  as 
on  the  hi'i'lier  basis. 


SDAKOTA 


NEBRASKA 


Memphis 


Tlie  broad  line  indicates  tlie  short-line  distance  of  199  miles  across  the  state 
of  Missouri  between  Hannibal  and  Kansas  City  which  measures  and  controls  all 
western  rates. 

Left-hand  figures  indicate  present  rates. 

Right-hand  figures  indicate  appro.ximately  the  rates  which  would  result  were  the 
Missouri  commission  to  i^rescribe  the  Iowa  scale  as  the  maximum  which  may  be 
charged  in  the  State  of  Missouri. 

540  Ik 


INTERSTATE  RATES  541 

Similarly,  the  outline  only  illustrates  the  change  in  the  ad- 
justment between  the  principal  basmg  points  in  Western  Trunk 
Line  territory.  But  around  these  basing  pomts  are  grouped  all 
the  adjacent  cities  and  towns ;  so  that  an  adjustment  once  re- 
duced from  Chicago,  or  Peoria,  or  the  Mississippi  river  to  the 
Upper  or  Lower  Missouri  river  pomts,  a  corresponding  reduction 
results  from  all  points,  both  of  origm  and  of  destination,  held 
common  with  these  basmg  points.  So  the  reductions  become 
automatic,  covering  all  interstate  movements  tln?oughout  the 
whole  territory  pictured  m  the  outhne. 

The  illustration  thus  far  deals  only  with  the  change  in  rates 
on  business  which  may  be  termed  purely  local  to  the  territory 
.immediately  embraced  in  tlie  illustration  ;  that  is,  business  which 
has  both  origin  and  destmation  within  the  territory.  We  have 
not  yet  touched  upon  that  volume  of  eastern  business  to  the 
Missouri  river  cities,  to  St.  Paul  and  Duluth,  and  to  the  territory 
beyond  as  far  west  as  the  states  of  Utah,  Idaho,  and  Montana, 
or  to  the  southwest,  including  the  State  of  Texas  and  territory 
of  New  Mexico.  Yet  the  rates  on  this  business  are  quite  as  vitally 
involved.  The  competitive  adjustment  between  Chicago,  Peoria, 
Mempliis,  the  Mississippi  river,  and  the  head  of  the  Lakes,  as 
previously  described,  was  origmally  evolved  and  has  since  been 
maintained  in  a  measure  to  permit  this  merchandise  to  move 
freely  by  all  routes  to  this  trans-Missouri,  northwestern  and  south- 
western territory.  Whenever  the  western  factors  of  the  through 
rates  to  this  territory  are  reduced,  the  rates  on  such  through  busi- 
ness fall  simultaneously  with  the  rates  on  the  local  business. 

Merchandise  for  this  western  territory  moves  from  the  E^st 
by  every  conceivable  route.  Every  all-rail  line  and  every  con- 
ceivable combination  of  rail  lines  publish  the  rates.  During  lake 
navigation  daily  boats  carry  this  merchandise  to  Chicago,  Milwau- 
kee, and  the  head  of  the  Lakes.  It  is  handled  by  steamer  in 
connection  with  rail  lines  from  every  South  Atlantic  port  from 
Norfolk  to  Jacksonville.  There  is  a  steamer  load  dispatched  daily 
from  New  York  and  given  to  the  rail  lines  at  the  port  of  Galves- 
ton, Texas.  The  rate  fixed  by  the  authority  of  the  state  of  Mis- 
souri, Ixitween  Hannibal  and  Kansas  City,  and  based  on  pui'cly 


542  KA1L\\A\     PKOIJLEMS 

local  oonsulerations,  has  its  leveling  effect  upon  the  rates  on  every 
pound  of  this  vast  tralhc.  The  next  map  shows  the  ultimate  reach 
of  the  rate-makint;'  powei'  of  Missouri. 

It  is  true  that  the  illustration  has  proceeded  thus  far  on  the 
assumption  that  Missouri  might  make  a  reduction  in  its  existing 
class  rates,  and  not  on  the  fact  that  such  rc(hictiou  has  been  made. 
But  Iowa  has  precisely  the  same  control  o\-cr  intt'rstate  adjust- 
ments that  the  illustration  demonstrates  Missouri  to  have,  and 
as  matter  of  fact  east-and-west  class  rates  are  what  they  are  to- 
day because  Iowa  some  years  ago  prescribed  60  cents  as  the  maxi- 
mum charge,  first  class,  for  the  haul  witliin  its  borders  between 
the  Mississippi  and  the  Missouri  rivers.  The  Iowa  distance  tariff 
of  1887  actually  measures  to-day  the  revenues  of  the  interstate 
railroads  on  all  interstate  freight  passing  into  or  out  of  or  beyond 
that  state. 

Besides,  Missouri  has  actually  made  radical  reductions  in  other 
rates  that  illustrate  as  well  the  principle  of  our  contention.  The 
legislature  of  1905  ordered  drastic  reductions  of  rates  on  grain, 
flour,  lime,  salt,  cement,  stucco,  lumber,  agricultural  implements, 
furniture,  wagons,  and  live  stock,  and  the  legislature  of  1907 
added  stone,  gravel,  and  other  commodities.  The  rates  have 
not  been  published,  as  the  constitutionality  of  the  legislation 
is  in  question  before  the  courts ;  but  if  the  state's  right  to 
order  the  reductions  is  finally  established,  the  interstate  rates 
on  these  bulk  commodities,  which  constitute  a  large  percentage 
of  the  carload  tonnage  of  all  western  carriers,  will  come  down 
with  them. 

The  reductions  which  will  result  in  rates  on  grain  will  illus- 
trate, /riie  short-line  distance  rate  between  the  INIissouri  and 
Mississippi  rivers  will  be  reduced  from  13  cents  per  100  pounds, 
on  wheat,  and  12  cents  per  100  pounds  on  corn  and  other  grain, 
to  8^  cents  per  100  pounds  on  all  grain.  The  state's  action  also 
calls  for  a  reduction  of  ^  cent  per  100  pounds  in  the  proportional 
rate  on  wheat  between  Kansas  City  and  Hannibal.  This  propor- 
tional rate  of  9  cents  is  the  rate  applied  on  all  wheat  coming  from 
beyond  the  jVIissouri  river,  and,  as  in  the  case  of  the  class  rates, 
it  is  the  pivotal  rate  in  the  whole  adjustment.    If  the  legislature's 


n^^  ^•.t,.  .Jf-fT-'  f,f  ,ft  h~.U\Ai>  orfT 


■tJRi  lifn-Ili;  •MI    11  M.'iu;ii7 


The  shaded  field  indicates  the  territory  immediatelv  affect, 
controlling  distance  of  199  miles  between  tlie  Mississippi 'river  an 

U  the  controllino  factor  in  Western  Trunk  Line  territory  be  I 
business  falls  automatically  in  proportion.  j 

The  water  lines  indicate  the  principal  through  rates  operat 
automatically  with  any  fluctuation  in  the  all-rail  rates. 


my  change  in  the  Missouri  commission's  maximum  rate  for  the 

ouri  river  base  lines. 

id  by  state  action  in  Missouri,  the  entire  revenue  on  east  and  west 

the  rail  and  water  carriers,  which  move  upward  "v  rlowuwai-d 


\' 


^ 


y 


^- 


w. 


)      ^'T' 


111  Ml  f  \.ii',   '  ((■•i'--H,i.((ii'>  iiiiiM>:i 


v.  ..,fi  n\ 


vntet  islitW'fNM  liti-i  !Mi 


INTEESTATE  RATES  643 

action  is  finally  upheld,  a  readjustment  of  the  whole  rate  fabric 
on  western  grain  will  result.  There  is  no  more  sensitive  adjust- 
ment in  existence  than  the  grain  rates.  No  single  part  of  any  of 
the  through  rates  can  be  disturbed  without  disturbing  the  revenue 
on  a  large  part  of  the  whole  movement. 

C'Ompetition  and  market  conditions  require  that  the  rates  on 
grain  from  the  States  of  Kansas  and  Nebraska  shall  be  so  adjusted 
that  the  grain  raised  in  those  states  can  move  eastward  freely 
through  either  of  the  primary  markets  at  the  Missouri  river, 
Kansas  City,  or  Omaha.  When  these  markets  are  reached,  not 
alone  the  grain  markets  of  the  United  States,  but  the  foreign 
markets  as  well  must  be  open  to  the  producer,  so  that  the  Ne- 
braska or  Kansas  producer  may  have  the  benefit  of  the  best  pre- 
vailing market  price  of  the  world  to-day  ;  and  the  adjustment 
must  be  maintained  from  day  to  day  so  that  the  large  grain 
buyers  may  take  the  surplus  grain  into  elevator  storage,  not 
only  at  the  Missouri  river,  but  at  the  large  storage  points  at  the 
Mississippi  river,  the  Ohio  river,  the  Lake  ports,  the  milling  cen- 
ters, and  the  Atlantic  and  Gulf  seaboard,  with  the  full  assurance 
that  when  the  demand  makes  eastern  or  southern  shipment  de- 
sirable he  will  have  a  parity  of  rates  in  either  direction  through 
any  market.  If  the  reduced  rates  are  finally  enforced,  the  mate- 
rial reductions  within  the  state  will  be  insignificant  compared 
with  the  automatic  reductions  in  the  interstate  adjustment  which 
must  follow.  The  same  reduction  must  be  made  from  Omaha,  not 
only  to  St.  Louis  but  to  the  other  Mississippi  river  crossings ; 
to  Peoria  and  Chicago,  the  gateways  to  the  Central  States ;  to 
Louisville,  Evansville,  Cairo,  and  Mempliis,  the  market  i)oints 
for  all  the  southeastern  states ;  to  Little  Rock,  Texarkana,  Fort 
Worth,  Dallas,  and  Shreveport,  the  principal  market  gateways 
for  the  States  of  Arkansas,  Louisiana,  and  Texas ;  and  to  Min- 
neapolis, the  largest  of  the  milling  centers.  Any  reduction  in 
the  rate  to  the  Mississippi  river  and  Chicago  means  just  that 
much  reduction  in  the  revenue  on  grain  moving  to  Boston, 
New  York,  Philadelphia,  Baltimore,  and  Newport  News  for 
export,  as  these  rates  are  all  made  on  the  Mississippi  river  com- 
bination.   And  when  these  rates  go  down,  a  similar   reduction 


544 


KA1I,^VA^■  rijor.LEiMS 


is  fm-fod  in  tlu>  rate  (o  Pciisacola,  I'lorida,  ]\Iol)ilo,  Alabama, 
New  Orleans,  Lonisiana,  and  Port  Artlinr  and  (Jalveston,  Texas, 
for  export. 

It  has  never  been  fonnd  feasible  to  carry  local  and  proportional 
rates  on  the  same  basis,  and  there  is  therefore  the  probability  of 
fnrther  reductit)n  hi  the  proportional  basis.  To  what  hgure  the 
proportional  rate  on  wheat  across  Missonri  might  fall  as  the  re- 
sult of  cai'rying  a  local  rate  of  8^  cents  is,  of  conrse,  problemati- 
cal. The  rates  up  to  this  time  have  always  been  maintained 
about  four  cents  lower  than  the  local  rates.  The  accompany- 
mg  chart  only  illustrates  the  direct  reductions  hi  the  existing 
proportional  rates. 


Reduction  in  the  wheat  and  flour  rate  adjustment  immediately  resulting  from 
reduction  in  tlic  state  mileage  rates  ordered  by  the  Missouri  legislature. 

The  broad  line  indicates  the  controlling  distance  of  199  miles  between  the  Missouri 
and  Mississippi  river  basing  points. 

Left-Hani)  Figures=Pkesknt  Pkopohtional  Rates 

Right-Ham)  Fi(;uRES  =  REDiicEn  Rates  made  Necessaky  by  Reduction  in 
Rate  KKOiM  Kansas  City  to  Hannibal 


INTEESTATE  KATES  545 

Kansas  and  Nebraska 

During  the  year  1907  the  Railroad  Commission  of  Kansas 
forced  a  reduction  of  15  per  cent  in  the  existing  rates  on  grain 
within  the  state.  A  reduction  in  grain  rates  always  applies  as 
well  on  flour,  meal,  and  other  grain  products.  The  Nebraska 
Commission  forced  a  15  per  cent  reduction  in  state  rates,  not 
only  on  grain  and  grain  products,  but  on  live  stock,  coal,  lumber 
and  fruits,  and  vegetables. 

Kansas  and  Nebraska  do  not  consume  a  hundredth  part  of 
what  they  produce,  and  the  great  bulk  of  the  commodities  con- 
sumed within  these  states  is  produced  outside  of  them.  The 
freight  destined  from  points  of  origin  within  either  state  and 
movmg  under  the  state's  mileage  rates  to  points  of  consumption 
within  the  state,  is  as  nothmg  to  that  which  moves  to  points  be- 
yond the  state.  That  is  to  say,  nearly  all  the  traffic  of  both  the 
states  is  uiterstate,  and  subject  to  the  influence  of  the  competitive 
interstate  rate  adjustments. 

The  products  of  Kansas  and  Nebraska  find  their  primary 
markets  (Kansas  City,  Kansas,  and  Omaha,  Nel)raska)  on  the 
Missouri  river  at  the  extreme  eastern  boundary  of  the  state,  and 
the  state  regulation  fixes  the  rate  at  which  the  product  is  hauled 
from  points  of  production  to  these  primary  markets,  no  matter 
what  the  ultimate  destination  of  the  product  may  be.  Asa  result, 
the  15  per  cent  reductions  in  the  grain  rates  required  by  both 
state  commissions  have  called  for  a  flat  ]'('<luction  of  just  that 
amount  in  all  mterstate  rates,  and  a  corresponding  siirinkage  in 
railroad  revenues  on  practically  all  of  the  grain  raised  in  both 
the  states. 

A  contingent  result  is  a  horizontal  reduction  in  tlic  rates  on 
Oklahoma  grain.  Ilie  Choctaw  line  of  the  Rock  Island  operates 
hi  Oklalioma  under  a  charter  which  provides  that  its  rates  in 
that  state  nuist  not  be  higher  than  tlu^y  ar(!  in  the  states  fiom 
which  it  enters  Oklahoma.  Tlic  line  enters  Oklalioma  from 
Kansas,  as  well  as  from  Arkansas,  and  the  cliartcr  i)iovision  re- 
quired an  immediate  adjustment  of  the  Oklahoma  rates  on  the 
Kansas  scale.    With  the  Oklahoma  rates  on  the  Kansas  basis  it 


546 


KAILWAV    TKor.LEMS 


was  t'ouiul  iiii[)(issil)l('  to  maintain  the  adjustment  fc^rnierly  pre- 
\  ailing'  from  points  in  soutlici'ii  Oklahoma  to  points  in  Texas, 
and  a  readjustment  there  was  necessary.  Siniihir  reductions  of 
the  rates  to  Arkansas  points  will  be  recpured. 


Changes  in  Wheat  Rates  ^ 

Left-hand  figures  are  former  rates. 

Right-hand  figures  are  rates  forced  by  Commission's  reductions. 

^  Necessitated  by  the  1.5  per  cent  reduction  ordered  by  the  Kansas  and 
Kebra.ska  Commissions  on  their  intrastate  rates.  Other  grains  and  grain  prod- 
ucts are  simihirly  affected.     Every  point  is  affected  like  the  few  here  shown. 


INTERSTATE  RATES  547 

This  situation  clearly  illustrates  the  interdependence  of  state 
and  interstate  rates.  The  chart  on  page  546  will  give  a  partial 
illustration  of  the  situation.  It  can,  of  course,  picture  the  effect 
only  at  a  few  points.  The  reductions  are  general,  affecting  every 
pomt. 

Texas 

In  Texas,  state  regulation  of  rates  is  deliberately  designed  to 
control  the  rates  on  interstate  business  botli  into  and  out  of  the 
state.  There  is,  from  the  standpoint  of  the  state,  excellent  reason 
for  this  policy ;  for,  aside  from  its  timber  and  a  portion  of  its 
grain,  little  which  Texas  produces  is  consumed  within  the  state, 
and  the  bulk  of  the  food  stuffs,  wearmg  apparel,  and  manufac- 
tured articles  which  its  citizens  consume  or  use  are  imported 
from  other  states. 

The  State  Commission  has  always  conceived  it  to  be  to  the 
state's  interest  to  link  its  fortunes  with  the  coastwise  steamship 
Imes  rather  than  with  the  all-rail  carriers  reaching  the  state 
through  its  northern  gateways.  Consequently  the  Commission 
has  made  the  port  of  Galveston  the  radiatmg  point  in  its  adjust- 
ment. The  class  rates  from  the  eastern  seaboard  have  always 
been  made  the  exact  combination  of  the  steamship  rates  from 
New  York,  Boston,  Philadelphia,  and  Baltimore  to  the  port  of 
Galveston,  plus  the  Commission's  local  rates  thence  to  every  point 
m  the  state.  This  has  forced  the  rail  carriers  to  group  all  the 
producmg  territory  west  of  seaboard  territory,  and  to  maintain 
a  relative  adjustment  calculated  to  permit  these  territories  to 
market  their  products  in  Texas  in  competition  with  the  rates 
from  the  seaboard  fixed  for  the  rail  carriers  both  in  and  outside 
the  state  by  the  Texas  Commission  and  the  steamship  lines. 

It  necessarily  follows  that  whenever  the  Texas  Commission  re- 
duces a  rate  from  Galveston  the  revenue  of  the  state  carrier  on  all 
Texas  business  orio-inatinfj  at  the  Atlantic  seaboard  is  lowered, 
and  the  interstate  carriers  are  compelled  to  make  corresponduig 
reductions  from  every  other  basing  point.  The  immediate  effect 
of  a  reduction  of  5  cents  in  the  Commission's  iirst-class  rate 
from  Galveston  to  Waco   is   outlined   in   the  following  chart. 


olS 


i;.\iL\\  .w    im;()1;iJ':.ms 


'I\'\as  is  altovf  all  a  cotton-niou  Iiil;"  state.  Tlio  wealth  of  its 
rariniiiL;'  (•oiiumuiitics  aiul  the  Imsiiiess  of  its  cities  is  founded  on 
the  product ioii  and  marketing  of  this  staple.  The  reveiuujs  of 
the  c-arriers  wiihin  the  state  are  largely  dependent  u[)on  the 
nio\enient  of  the  cotton  crop.    Texas  produces  one  (quarter  of 


This  chart  shows  the  reduction  in  interstate  rates  wliich  would  follow  a  reduction 
of  five  cents  in  the  Texas  Riiilrnad  Commission's  first-class  rate  from  Galveston  to 
Waco.  (Tlic  rates  sliowii  a|i))ly  only  from  tlie  liasini^  points.  All  other  towns  group 
around  these  and  the  reduction  from  all  is  the  same  as  from  the  hasiug  point.) 

Upper  Figures  =  Rates  at  Present  in  Effect 

Lower   Figures  =  Rates    which    would    ati'ly    following    the    Above- 
Mentioned  Reduction 

all  the  cotton  grown  within  the  United  States.  It  has,  however, 
no  cotton-spinning  industry  worthy  the  name.  Probably  99  [)er 
cent  of  the  cotton  grown  in  the  state  is  sent  to  New  England 
and  southeastern  spinning  points  and  to  foreign  countries.    The 


INTERSTATE  RATES  549 

revenues  of  the  carriers  on  all  this  interstate  and  foreign  cotton 
freight  are  absolutely  dependent  upon  the  rates  fixed  by  the 
Railroad  Commission  of  Texas  to  the  port  of  Galveston. 

Three  years  since,  the  Commission  ordered  a  reduction  in  cot- 
ton rates  of  5  cents  per  100  pounds,  or  $1  per  ton.  The  move- 
ment from  Texas  to  interstate  and  foreign  destinations  in  the 
fiscal  year  ending  June  30,  1906,  was  a  million  and  a  half  tons. 
The  direct  result  to  interstate  carriers  from  this  one  act  of  the 
Commission  has  been  an  annual  shrinkage  in  their  revenues  of 
something  like  a  million  and  a  half  of  dollars. 

A  cardinal  principle  in  the  three  principal  classification  terri- 
tories is  that  valuable  commodities  such  as  chy  goods,  notions, 
boots  and  shoes,  hats,  etc.,  shall  take  first-class  rates,  whether  the 
goods  are  shipped  in  carloads  or  in  less  than  carload  quantities. 
There  is  no  voluntary  variation  from  this  in  any  mterstate  ad- 
justment. The  principle  has  frequently  been  reviewed  without 
disapproval  by  the  Interstate  Commerce  Commission.  The  Texas 
Commission,  however,  has  taken  the  opposite  view,  and  in  its 
state  classification  has  fixed  Class  "A"  basis  on  these  commodi- 
ties when  shipped  in  carload  quantities.  This  action  on  their 
part  has  no  force  or  effect  so  far  as  concerns  state  traffic.  None 
of  these  commodities  are  manufactured  within  the  state,  and  no 
house  in  the  state  jobs  them  in  carload  cpuuitities.  The  State 
Commission's  action  does,  however,  reduce  the  interstate  rate  on 
these  commodities  from  New  York  to  interior  Texas  towns  37 
cents  per  100  pounds  in  carload  lots. 

That  the  Texas  C-ommission  exercises  its  rate-making  powers 
with  deliberate  intent  to  control  the  interstate  rates  for  the 
benefit  of  its  industries  aj)[)ears  from  tlu;  following  illustration. 

I'he  Rock  Island  has  a  line  running  southwest  IVom  tlic.  State 
of  Kansas,  passing  diagonally  across  the  Panliandle  of  Texas 
into  New  Mexico  and  on  to  El  I'aso.  There  are  larg(^  salt  indus- 
tries on  this  lin(!  at  Ilutehinsou,  Kansas,  and  in  the  year  IDOT) 
the  Rock  Island,  being  asked  to  establish  a  i-easonal)le  rale  tVoui 
Hutchinson  into  its  Paidiandl(!  towns,  i)ul)Iislied  an  a\'erag(!  rate 
of  V.)}r  cents.  'I'lie  average;  distance  is  about  300  miles.  Tliere 
are  salt  plants  of  considerable  impoilanee  at  (iraml  Saline,  Salt, 


o")!) 


I:AlI.^v.\^■  imjoi'.i^kms 


City  and  Colorado,  Texas,  and  under  the  State  Connnission's 
onlors,  the  Koek  Ishmd,  in  connection  with  otlier  hnes,  had  in 
effect  an  averacfe  rate  of  '201,-  cents  per  100  pounds  from  these 


<: 

CD 

KANSAS 

O 

1 
1  _ 

1 
1 
1 

Texhoma 

•■ 

1 

Hutchinson,? 

imoJS^ 

^"\ 

1 

\f 

OKLAHOMA 

O  1 

LU' 
^1 

\ 

w\ 

^"V-i 

Zj 

/ 

^^"M/M.^^./^^-^-vx, 

/ 

Colorado 

N.              GRAND5ALINE 

Salt  City 

state  salt  plants  to  the  Punliandle  towns.  Tlie  average  haul  to 
these  points  is  from  (Irand  Saline,  525  miles  ;  from  Colorado,  G60; 
and  Salt  City,  Texas,  G90  miles.  When  the  Rock  Island's  inter- 
state rate  came  to  the  attention  of  the  Texas  Commission,  it 


II^TERSTATE  RATES  551 

ordered  the  Rock  Island's  Texas  line  to  nonconcur  in  the  reduc- 
tion, threatening  that  if  the  interstate  rate  were  allowed  to  stay 
in,  they  would  compel  the  state  carriers  to  haul  salt  from  these 
state  plants  to  the  Panhandle  points  for  15  cents  per  100  pounds. 
Needless  to  say,  the  interstate  rate  was  withdrawn,  and  it  remains 
to-day  at  the  Texas  maximum  rate  of  22^  cents.  The  map  on 
page  550  illustrates  the  situation. 

Illinois 

Recent  reductions  in  class  rates  in  Illinois  have  forced  reduc- 
tions of  the  interstate  rates  between  St.  Louis,  Hannibal,  Quincy, 
Keokuk,  Davenport,  and  Dubuque,  and  will  eventuall}*  force 
similar  reductions  in  rates  between  intermediate  local  points 
either  wholly  mterstate  or  wholly  within  other  states  than  Illinois. 

Arkansas 

The  Arkansas  Commission  has  prescribed  a  full  line  of  class 
and  commodity  rates  which  produce  an  effect  on  all  the'  rates  on 
merchandise  brought  into  the  state  from  points  beyond,  similar 
to  the  results  of  the  Texas  Commission's  regulation  of  the  rates 
in  that  state. 

Minnesota 

The  ^Minnesota  Commission  has  fixed  a  scale  of  class  rates 
within  the  state  which  recently  required  the  leveling  down  of  all 
rates  from  Minneapolis,  St.  Paul,  and  Duluth  to  Iowa  and 
Dakota  points.  It  was  with  respect  to  this  situation  that  Judge 
Lochren  said  in  the  case  before  him  involvuig  the  validity  of 
these  rates  : 

It  would  seem  to  be  very  difficult  to  avoid  .  .  .  tlie  conclusion  that  these 
rates  tixed  in  respect  to  Minnesota  do  necessarily  and  directly  affect  inter- 
state commerce.  ...  I  have  no  do.ibt  tliat  Congress  might  very  pro])erly, 
under  the  constitutional  provision  giving  it  the  entire  power  of  control 
over  interstate  comnmrce,  assume  control  of  the  avenues  of  interstate^  com- 
merce, of  the  railroads  which  are  engagi-d  in  intcrstati^  couimfrcis  and  of 
all  rates  which  are  collected  l)y  those  railroads,  whether  within  the  states 
or  without  the  states,  because  the  matter  of  those  rates  would  affect  these 
avenues  of  interstate  commerce,  and  might  affect  their  ability  to  continue 
as  avenues  of  interstate  commerce. 


552  i;ai!,\\  .\^•   pkot.lkms 

And  as  to  this  aronnuMit,  uiu'imI  before  the  Supreme  Court  in  tlie 
Miuiu'st)ta  rate  case,  recently  ilccided,  tlie  opinion  of  Mr.  Justice 
Pei'khani  says: 

Still  anotluT  Fedcnil  (itu'stion  is  nr^cd  growini;'  out  of  the  assertion 
that  the  laws  are,  by  their  necessary  effect,  an  interference  with  and  a 
regulation  of  interstate  commerce,  the  grounds  for  which  assertion  it  is  not 
now  necessary  to  enlarge  upon.    The  i|uestion  is  not,  at  any  rate,  frivolous. 


XXI 

THE  NORTHERN  SECURITIES  COMPANY  i 

rilHE  certificate  of  incorporation  of  the  Northern  Securi- 
J-  ties  Company  was  signed  by  the  three  incorporators  and 
acknowledged  in  the  state  of  New  Jersey  on  the  twelfth  of  No- 
vember, 1901.  During  the  three  days  immediately  following, 
resolutions  were  adopted  by  the  newly  organized  company, 
authorizing  the  purchase  of  any  shares  that  might  be  tendered 
to  the  company,  under  specified  conditions  and  terms.  Power  to 
do  so  was  expressly  granted  in  the  charter.  "  The  objects  for 
which  the  corporation  is  formed  are  :  To  acquire  by  purchase, 
subscription,  or  otherwise,  and  to  hold  as  investment,  any  bonds 
or  other  securities  or  evidences  of  indebtedness.  .  .  .  To  pur- 
chase, hold,  sell,  assign,  transfer,  mortgage,  pledge,  or  otherwise 
dispose  of,  any  bonds  or  other  securities  or  evidences  of  in- 
debtedness created  or  issued  by  any  other  corporation.  ...  To 
purchase,  hold,  etc.,  shares  of  capital  stock  of  any  other  cor- 
poration .  .  .  and,  while  owner  of  such  stock,  to  exercise  all 
the  rights,  powers,  and  privileges  of  ownership,  including  the 
right  to  vote  thereon.  .  .  ."  The  nature  of  these  powers,  with 
respect  to  the  signs  of  indebtedness  of  other  corporations,  has 
caused  the  company  to  be  commonly  described  as  a  holding 
company. 

This  particular  idea  of  a  holding  company  antedates  the 
Northern  Securities  Company  by  seven  or  eight  years ;  and,  in 
a  larger  sense,  the  principle  involved  in  the  holding  company 
has  found  at  least  partial  expression  in  the  organization  of  rail- 
way companies  for  half  a  century.  The  voting  trust  may  also 
be  regarded  as  an  antecedent  of  the  modern  holding  company, 

1  From  "A  History  of  the  Northern  Securities  Case,"  Bulletin  of  the  Univer- 
sity of  Wiscoiifiin,  No.  142,  July,  li»0(),  pp.  225-241.  Elaborate  footnote  references 
are  omitted.  The  problems  of  railroad  combination  botli  economic  and  le^al 
are  discussed  in  liipley's  Railroads:  Finance  and  Organization. — Ed. 

653 


554  RAILWAY  PROBLEMS 

and  the  causes  which  have  produced  the  one  are  analogous  to 
those  which  have  produced  the  other.  The  process  of  metamor- 
phosis between  the  voting  trust  and  the  holding  company  does 
not  appear  to  be  either  long  or  complex. 

Both  the  remote  and  the  immediate  causes  of  the  organiza- 
tion of  the  Northern  Securities  Company  were  partly  personal 
and  partly  economic.  They  were  personal  in  so  far  as  the  Secu- 
rities Company  was  the  outgrowth  of  a  desire  on  the  part  of 
certain  men  to  perpetuate  a  certain  policy.  They  were  economic 
in  that  the  execution  of  certain  large,  almost  empire-building 
plans  could  be  promoted,  in  the  estimation  of  its  founders,  by 
the  company.  The  founders  of  the  company,  through  years  of 
effort,  had  become  accustomed  to  associate  their  railway  proper- 
ties with  a  certain  economic  policy.  And  thus  the  personal  and 
the  economic  causes  of  the  organization  of  the  company  prac- 
tically become  merged  into  one,  namely,  the  desire  to  insure 
uninterrupted  progress  in  the  building  of  a  great  system  of 
transportation.  The  existence  of  other  causes,  like  the  desire 
to  suppress  competition,  to  inflate  values,  has  been  alleged.  An 
examination  of  these  will  be  taken  up  later. 

The  original  idea  of  the  Securities  Company  was  that  it 
should  embrace  the  ownership  of  about  one  third  of  the  Great 
Northern  stock.  A  small  number  of  the  Great  Northern  stock- 
holders, not  to  exceed  eleven  out  of  about  1800,  felt  that  they 
were  getting  along  in  years.  One  of  them  was  eighty-six,  an- 
other eighty-two,  and  several  of  them  past  seventy  years  of  age ; 
and  they  desired  to  work  together  as  they  had  done  for  more 
than  twenty  years.  Some  of  these  stockholders  lived  in  foreign 
countries.  Their  powers  and  privileges  had  to  be  exercised  by 
their  legal  representative.  This  might  continue  to  work  satis- 
factorily as  long  as  the  old  circle  of  associates  remained  unbroken ; 
but  a  number  of  them  felt  that  a  more  permanent  arrangement 
would  be  preferable.  A  close  corporation,  embracing  six  or  eight 
men,  was  suggested,  to  which  others  objected  because  such  an 
arrangement  would  violate  the  principle  of  equality  which  had 
always  prevailed  among  Great  Northern  stockholders.  As  soon 
as  the  idea  of  exclusiveness  had  been  abandoned  and  an  inclusive 


THE  NORTHERN   SECURITIES  COMPANY         555 

organization  decided  upon,  "  the  question  came  up  :  Why  not 
put  in  the  Northern  Pacific?  That  is  the  way  it  occurred." 
This,  in  substance,  is  the  manner  in  which  President  J.  J.  Hill 
summarizes  what  has  been  alluded  to  above  as  the  "■  personal  " 
element  in  the  organization  of  the  Securities  Company.  And 
to  place  at  the  head  of  the  new  company  the  guiding  spirit  and 
constructive  genius  of  that  group  of  men  at  once  made  the 
Securities  Company  doubly  a  matter  of  "moral  control,"  of 
"  fortification,"  and  of  "  strength."  In  the  words  of  a  colleague, 
who  is  familiar  with  the  territory  through  which  the  Great 
Northern  railway  runs,  that  road  is  "  regarded  as  a  personality. 
People  know  that  there  is  some  one  whom  they  can  see  and 
talk  to.  If  other  means  fail,  they  know  they  can  go  to  see 
'  Jim'  Hill  about  it,  and  he  will  give  them  a  fair  hearing." 
From  the  threefold  point  of  view  of  public  policy,  of  person- 
ality, and  of  business,  the  actual  course  of  the  organization 
represents  the  best  that  could  have  been  done. 

The  desire  to  secure  a  permanent  basis  for  the  interchange 
of  commodities  between  great  producing  sections  of  the  United 
States  and  of  the  Orient  may  be  characterized  as  the  largest 
economic  cause  of  the  organization  of  the  Securities  Company. 
The  Great  Northern  and  the  Northern  Pacific  railways  had 
lived  in  comparative  peace  with  each  other  for  twenty  years. 
Both  had  maintained  joint  rates  with  other  roads  like  the  Bur- 
lington. The  Burlington  taps  the  principal  live-stock  markets, 
important  cotton,  coal  and  mineral  areas  of  the  United  States. 
The  unified  control  and  management  of  these  three  great  systems 
of  railways  —  Great  Northern,  Northern  Pacific,  and  Burlington 
—  makes  it  possible  to  secure  a  sufficient  variety  and  quantity 
of  freight  to  make  systematic  back  loading  a  certainty.  Back 
loading,  together  with  a  steady  flow  of  freight  large  enough  to 
insure  the  economical  utilization  of  motive  power  and  car  ca- 
pacity, results  in  a  general  economy  of  operation  which  makes 
rates  that  would  bankrupt  numerous  other  roads  remunerative 
to  the  systems  embraced  in  the  Securities  Company.  Such  a 
flow  of  freight  had  been  developed  on  the  basis  of  joint  rate 
agreements  with  railways  and  agreements  with  steamship  lines. 


550  KAIL  WAV   PROr.LEMS 

The  value  of  the  railway  properties  concerned,  as  well  as  the 
continued  prosperity  of  the  connnercial  and  industrial  interests 
served  by  them,  depended  largely  upon  the  permanency  and 
security  of  the  arrangements  which  had  begun  to  crystallize  with 
the  turn  of  the  century,  and  to  which  the  opening  of  the  Orient 
promised  to  bring  still  greater  returns.  However,  joint  rates 
may  be  withdrawn  at  any  time,  and  it  was  thought  too  hazard- 
ous to  build  up  a  great  business  "  extending  across  the  continent 
and  even  across  the  ocean  on  the  basis  that  to-morrow  the  rate 
might  be  changed  or  the  party  with  whom  we  were  working  to 
reach  the  different  points  of  production  or  consumption  had 
some  other  interest  or  some  greater  interest  elsewhere.  It  was 
necessary  in  doing  this  that  we  should  have  some  reasonable 
expectation  that  we  could  control  the  permanency  of  the  rate  and 
that  we  would  be  able  to  reach  the  markets.  In  other  words,  if 
the  man  producing  lumber  on  the  coast,  or  cattle  on  the  ranches, 
or  ore  in  the  mines,  could  not  find  a  marlcet  for  it  and  if  we  could 
not  take  it  to  a  market  that  would  enable  him  to  sell  his  stuff 
for  a  profit,  he  would  have  to  stop  producing  it.  That  was  the 
line  we  worked  upon,  and  that  was  the  reason  we  felt  called 
upon  to  put  ourselves  in  a  position  where  we  could  control 
access  to  the  markets."  ***** 

A  glance  at  a  railway  map  of  the  territory  west  of  the 
Mississippi  reveals  the  importance  and  strength  of  the  Burling- 
ton system.  West  of  the  Missouri  river  it  lies  in  the  very  lap 
of  the  Union  Pacific,  while  east  of  that  river  it  forms  a  great 
bridge,  with  its  terminal  pier  in  Chicago.  The  Northwestern, 
St.  Paul  and  Burlington  systems  largely  complement  each  other 
in  the  great  manufacturing,  agricultural  and  mineral  regions  of 
the  greater  northwest.  In  relation  to  the  Great  Northern  and 
Northern  Pacific,  the  Burlington  is  like  the  point  and  mold- 
board  of  a  plow,  the  beam  and  handles  of  which  are  constituted 
by  the  former  systems.  The  Burlington  connects  Chicago  with 
St.  Louis,  Kansas  City,  Omaha,  Denver,  St.  Paul  and  Minneap- 
olis, and  numei'ous  smaller  but  important  cities,  which,  taken 
collectively,  represent  the  manufacture  and  sale  of  every  staple 
commodity  and  the  raw  materials  therefor. 


THE  NORTHERN   SECURITIES  COMPANY         557 

An  alliance  with  a  system  possessing  the  tactical  and  phys- 
ical advantages  of  the  Burlington  could  not  be  otherwise  than 
a  source  of  strength  and  profit  to  the  party  making  such  an 
alliance. 

For  many  years  the  Great  Northern  and  Northern  Pacific 
had  been  contemplating  direct  connection  with  Chicago.  The 
usual  alternatives  of  the  construction  of  a  new  line  or  the  lease 
or  purchase  of  an  existing  one,  presented  themselves.  The 
former  would  result- in  unnecessary  duplication  and  waste  ;  the 
latter  only  was  deemed  expedient.  The  improved  financial 
condition  of  the  Northern  Pacific  and  the  dissolution  of  the 
voting  trust  planned  for  January  1,  1901,  made  the  year  1900 
propitious  for  the  execution  of  the  long-cherished  plans  for  an 
eastward  extension.  At  least  five  different  lines  were  within 
the  range  of  possibility.  These  were :  the  Wisconsin  Central ; 
Chicago  &  Northwestern;  Chicago,  Milwaukee  &  St.  Paul ;  Chi- 
cago, Burlington  &  Quincy  ;  and  the  Chicago  Great  Western. 
To  what  extent  each  of  these  great  lines  figured  as  possibili- 
ties in  the  minds  of  the  Great  Northern  and  Northern  Pacific, 
and  the  relative  degrees  of  desirability  which  were  attached  to 
each  by  them,  does  not  appear  in  the  testimon}^,  although  the 
statement  may  be  positively  made  that  more  than  two  of  these 
railways  were  made  the  subject  of  correspondence  and  probably, 
also,  of  tentative  solicitation. 

The  preferences  of  J.  J.  Hill  and  J.  P.  Morgan,  with  respect 
to  the  particular  line  to  be  acquired  as  an  eastward  extension, 
do  not  appear  to  have  coincided,  when  an  extraneous  factor 
appeared,  which  probably  added  the  force  of  circumstances  to 
Hill's  preference.  It  appears  that  during  the  "fall  of  1900  or 
early  winter  of  1901"  the  Union  Pacific  interests  purchased  in 
the  market  some  -18,000,000  or  19,000,000  out  of  ijil 08,000,000 
or  $109,000,000  of  the  Burlington  stock.  Much  of  the  Burling- 
ton stock  had  been  held  for  many  years  by  people  who  had  in- 
herited it,  and  it  was  found  impossible  to  secure  control  of  the 
property  through  purchases  in  the  open  market.  This  episode  in 
the  stock-market  hastened  the  completion  of  negotiations  which 
probably  had  been  begun  before  that  time.    The  two  northern 


558  KAIL  WAY  PliOliLEMS 

transcontinental  lines  were  not  inclined  to  permit  a  rival  interest 
to  wrest  from  them  this  much-coveted  property  without  leaving 
a  single  stone  unturned.  The  testimony  does  not  show  a  direct 
causal  connection  between  the  attempt  of  the  Union  Pacific 
interests  to  purchase  the  Burlington  in  the  open  market  and 
the  negotiations  of  Hill  for  the  same  property,  although  more 
than  mere  coincidence  probably  existed.  Negotiations  were 
opened  by  Hill  with  the  executive  committee  of  the  board  of 
directors  of  the  Burlington  system  about-  Christmas,  1900,  or 
January  1,  1901.  Prior  to  this  date  no  negotiations  had  taken 
place.  "  The  actual  negotiations  commenced  about  or  after  the 
middle  of  January,  1901."  Early  in  March,  1901,  E.  H.  Har- 
riman  and  Jacob  H.  Schiff,  acting  for  themselves,  or  for  the 
Union  Pacific,  or  for  interests  friendly  to  the  Union  Pacific, 
requested  to  be  allowed  to  join  with  the  Great  Northern  and 
Northern  Pacific  in  the  purchase  of  the  Burlington.  This  request 
was  refused.  At  that  time  the  Union  Pacific  interests  no  longer 
owned  the  eight  or  nine  millions  of  Burlington  stock  which  had 
been  purchased  during  the  preceding  fall  or  winter,  but  they 
now  desired  to  secure  a  half  interest  in  the  final  purchase.  A 
month  later  the  Burlington  sale  was  consummated.  The  two 
northern  roads  had  made  the  offer  which  the  Burlington  direct- 
ors had  specified  beforehand  as  satisfactory  to  Hill,  and  nearly 
all  the  Burlington  shareholders  accepted  it.  The  Great  North- 
ern and  Northern  Pacific  each  received  one  half  of  the  $108,- 
000,000  of  capital  stock  of  the  Burlington  at  $200  per  share, 
payable  in  joint  collateral  four  per  cent,  long-time  bonds  of  the* 
two  companies,  for  the  payment  of  which  the  acquired  96.79 
per  cent  of  the  stock  of  the  old  Burlington  Company  was 
pledged  as  collateral  security.  These  two  companies  had  now 
become  joint  owners  of  all  the  Burlington  stock,  and,  as  such, 
they  had  tlie  right  thereafter  to  exercise  all  the  rights  and  privi- 
leges of  shareholders,  including  the  right  to  elect  the  board  of 
directors.  The  purchase  of  the  Burlington  stock  by  the  two 
companies  in  equal  parts,  it  was  thought,  would  serve  each  of 
them  as  well  as  if  it  were  the  sole  owner  of  such  stock,  while 
such  a  purchase  might  have  been  beyond  the  financial  means  of 


THE  I^OETHERN   SECURITIES  COMPANY         559 

either  company  by  itself.  "  The  evidence  is  therefore  uncontra- 
dicted and  conclusive  that  the  Great  Northern  and  Northern 
Pacific  companies  each  purchased  an  equal  number  of  shares  of 
the  Burlington  stock  as  the  best  means  and  for  the  sole  purpose 
of  reaching  the  best  markets  for  the  products  of  the  territory 
along  the  lines,  and  of  securing  connections  which  would  fur- 
nish the  largest  amount  of  traffic  for  their  respective  roads, 
increase  the  trade  and  interchange  of  commodities  between  the 
regions  traversed  by  the  Burlington  lines  and  their  connections 
and  the  regions  traversed  or  reached  by  the  Great  Northern  and 
Northern  Pacific  lines,  and  by  their  connecting  lines  of  shipping 
on  the  Pacific  Ocean,  and  as  the  best  if  not  the  only  means 
of  furnishing  an  indispensable  supply  of  fuel  for  their  own  use 
and  for  the  inhabitants  of  the  country  traversed  by  their  lines. 
These  connections  and  the  interchange  of  traffic  thereby  secured 
were  deemed  to  be  and  are  indispensable  to  the  maintenance  of 
their  business,  local  as  well  as  interstate,  and  to  the  develop- 
ment of  the  country  served  by  their  respective  lines,  and  of  like 
advantage  to  the  Burlington  lines  and  the  country  served  by 
them,  and  strengthen  each  company  in  its  competition  with 
European  carriers,  for  the  trade  and  commerce  of  the  Orient." 

During  the  very  days  when  the  Burlington  transaction  was 
being  perfected,  the  men  who  had  been  refused  what  they 
regarded  an  equitable  share  in  that  purchase  elaborated  plans 
which  were  calculated  to  vanquish  their  enemies  and  elevate 
the  Union  Pacific  interests  to  a  position  of  supremacy  in  trans- 
continental traffic.  These  stirring  events  led  a  cosmopolitan 
editor  to  invent  a  parable  of  fishes  in  which  the  bass  had 
swallowed  the  minnow,  and  the  pike  swallowed  the  bass.  In 
this  instance,  however,  the  bass,  armed  with  retirement  fins, 
compelled  the  pike  to  spew  him  out. 

The  total  outstanding  capital  stock  of  the  Northern  Pacific 
was  ^155,000,000  of  wliich  .!!80,000,000  was  common  and  |75,- 
000,000  preferred.  During  April  and  early  in  May,  1901,  the 
Union  Pacific  interests  acquired  -1578,000,000  of  this  stock, — 
141,000,000  preferred  and  iii<37,0 00,000  common  — with  the 
view  of  controlling  the  Northern  Pacific  railway,  with  its  half 


500  RAILWAY  PROBLEMS 

interest  in  the  Burlington  system.  Such  a  movement  appears  to 
have  been  anticipated.  "  It  was  a  common  story  at  one  time." 
Individuals  representing  the  Great  Northern  and  Northern 
Pacific  interests,  becoming  apprehensive,  increased  their  hold- 
ings in  the  Northern  Pacific  by  purchasing  about  $15,000,000 
of  common  stock  in  the  market.  Short  selling  of  Northern 
Pacific  stock  and  the  scramble  to  cover,  when  it  was  discovered 
that  only  a  limited  supply  was  to  be  had,  drove  the  price  of 
Northern  Pacific  common  stock  up  to  about  $1000  per  share. 
This  was  the  climax  of  a  series  of  events  which  culminated  in 
the  stock-exchange  crisis  of  May  9,  1901.  "  The  markets  of  the 
world  were  convulsed,  the  equilibrium  of  the  financial  world 
shaken,  and  many  speculative  interests  in  a  critical  condition." 
On  May  1,  1901,  when  the  so-called  "  raid "  upon  Northern 
Pacific  stock  became  known,  J.  J.  Hill  and  his  associates,  who 
had  been  in  possession  of  large  blocks  of  Northern  Pacific  stock 
from  the  time  of  the  reorganization  of  the  company,  were  hold- 
ing from  $18,000,000  to  $20,000,000,  par  value,  of  common 
stock  ;  and  J.  P.  Morgan  &  Co.  were  holding  some  $7,000,000  or 
$8,000,000.  Together,  May  1,  1901,  these  individuals  lacked 
the  dramatic  $15,000,000  of  common  stock,  which,  when  they 
had  acquired  it,  gave  them  a  majority  of  some  $3,000,000  par 
value,  of  the  $80,000,000  of  common  stock,  when  the  "  show 
down  of  hands "  occurred  after  May  9.  Although  the  Union 
Pacific  interests  represented  by  E.  H.  Harriman  and  Winslow 
S.  Pearce,  as  trustees  for  the  Oregon  Short  Line,  held  a  majority 
of  $1,000,000  of  the  total  amount  of  stock,  their  majority  lay  in 
the  preferred  shares  which  could  be  retired  on  any  1st  of  Jan- 
uary prior  to  1917, — that  is,  before  the  present  owners  could 
get  an  opportunity  of  exercising  the  authority  which  was  as- 
sumed to  reside  in  them,  and  which  would  give  them  the  coveted 
control.  This  is  why  the  pike  did  not  swallow  the  bass.  To  the 
country  at  large  and  to  Wall  Street  these  events  appeared  like 
a  duel  between  giants,  but  one  who  appears  to  have  been  a 
leading  participant  in  the  duel,  on  the  losing  side,  asserted  that 
he  never  was  in  a  contest,  nor  did  he  and  his  associates  lose 
money. 


THE  NOETHERN  SECURITIES  COMPANY         561 

According  to  the  by-laws  of  the  Northern  Pacific  Company, 
the  annual  election  of  its  board  of  directors  by  the  stockholders 
occurs  in  October,  and  under  the  distribution  of  stock  existing 
after  May  9,  1901,  the  Union  Pacific  interests  could  have  con- 
trolled this  election,  and  thus  prevented  the  retirement  of  the 
preferred  stock  on  January  1,  1902,  which  would  legislate  them 
out  of  control.  Both  the  preferred  and  the  common  stock  could 
vote  under  the  conditions  existing  on  May  9,  1901.  A  post- 
ponement of  the  annual  meeting  from  October  till  after  Janu- 
ary 1,  1902,  was  frequently  thought  of  and  advised  by  counsel. 
It  could  have  been  done.  This  potential  power  of  retiring  the 
Northern  Pacific  preferred  stock  before  the  same  could  be  voted, 
residing  in  the  Northern  Pacific  Board  of  Directors,  appears  to 
have  generated  a  conciliatory  attitude  on  the  part  of  the  repre- 
sentatives of  Union  Pacific  interests,  and  negotiations  for  the 
purchase  of  such  shares  were  successfully  carried  through  by 
J.  P.  Morgan  &  Co.  Direct  testimony  admitting  this  causal 
connection  does  not  exist,  but  the  admitted  facts  make  it  appear 
highly  probable.  To  be  sure,  the  retirement  of  the  preferred 
stock  had  been  thought  of  long  befoi-e,  and  the  right  to  do  so 
on  any  1st  of  January  between  1896  and  1917  was  expressly 
reserved;  yet  up  to  1901,  when  this  plan  was  finally  consum- 
mated, no  plan  had  been  devised  for  the  retirement  of  that  stock. 
The  interested  parties  agreed  not  to  wait  until  Octobei',  but  to 
act  at  once,  in  order  to  estai)lish  permanent  peace  and  ''  to  show 
that  there  was  no  hostility."  The  detailed  movements  follow- 
ing the  9th  of  May  do  not  appear  clearly  from  the  evidence, 
but  the  results  of  what  took  place  are  indicated  in  the  bulle- 
tin [)ublished  on  June  1st.  "  It  is  oflicially  announced  that  an 
understanding  has  been  reached  between  the  Northern  Pacific 
and  the  Union  Pacific  interests,  under  which  the  composition 
of  the  Northern  Pacific  board  will  be  left  in  the  hands  of  J.  P. 
Morgan.  Certain  names  have  already  been  suggested,  not  now 
to  be  made  public,  which  will  especially  be  recognized  as  rej)re- 
sentative  of  the  common  interests.  It  is  asserted  that  complete 
and  permanent  harmony  will  result  under  the  plan  adopted 
between    all   interests   involved."    This  "  understanding "    had 


562  KAIL  WAV   PROBLEMS 

been  incorporated  in  the  Arbitration  Agreement  of  May  31, 
1901,  which  the  bulletin  just  quoted  announced  to  the  public, 
and  which  gave  "  every  important  interest  its  representative." 
In  it  the  "■  vitality  and  vigor  of  the  peace  policy  established 
between  the  railroads  "  found  definite  expression.  It  showed 
"  that  they  were  acting  under  what  we  know  as  a  community 
of  interest  principle,  and  that  we  were  not  going  to  have  that 
battle  in  Wall  Street.  There  was  not  going  to  be  people  stand- 
ing up  there  fighting  each  other."  Had  this  battle  in  Wall 
Street  been  fought  to  the  last  ditch  and  the  Union  Pacific 
interests  triumphed,  the  measure  of  the  injury  done  to  the  Great 
Northern  and  Northern  Pacific  would  have  been  destruction,  in 
the  judgment  of  those  who  are  responsible  for  tlie  administra- 
tion of  these  properties,  —  destruction  in  the  sense  that  the 
properties  would  have  been  incapacitated  from  doing  what  it 
was  intended  they  should  do  and  what  they  were  quite  able  to 
do  in  building  up  a  great  interstate  and  Oriental  traffic,  unless 
they  had  all  gone  into  a  single  combination.  "  With  the  North- 
ern Pacific  as  a  half  owner  in  the  shares  of  the  Burlington 
and  responsibility  for  one  half  of  the  purchase  price  of  these 
shares,  the  transfers  of  the  shares  of  the  Northern  Pacific  or  the 
control  of  the  Northern  Pacific  to  an  interest  that  was  adverse  or 
an  interest  that  had  greater  investments  in  other  directions,  the 
control  being  in  the  hands  of  companies  whose  interests  would 
be  injured  by  the  growth  and  development  of  this  country 
would,  of  course,  put  the  Great  Northern  in  a  position  where  it 
would  be  almost  helpless,  because  we  would  be,  as  it  were,  fenced 
out  of  the  territory  south  which  produces  the  tonnage  we  want 
to  take  west  and  which  consumes  the  tonnage  we  want  to  bring 
east,  and  the  Great  Northern  would  be  in  a  position  where  it 
would  have  to  make  a  hard  fight  —  either  survive  or  perish,  or 
else  sell  out  to  the  other  interests.  The  latter  would  be  the 
most  businesslike  proceeding."  With  the  view  of  preventing 
the  possibility  of  future  "  raids  "  upon  the  Great  Northern  and 
Northern  Pacific  stock  and  of  fortifying  these  two  roads  and 
their  connections  in  their  competitive  struggle  with  "  the  Suez 
Canal  and  the  high  seas  and  the  entire  world,"  the  idea  of  a 


THE  NORTHERN   SECURITIES   COMPANY         563 

permanent  holding  company  was  invented.  It  has  been  persist- 
ently denied  that  the  desire  to  restrain  competition  among  the 
constituent  companies  had  anything  to  do  with  the  organization 
of  the  Northern  Securities  Company.  *  *  * 

The  organization  of  a  holding  company  having  been  deter- 
mined, it  was  necessary  to  decide  upon  the  form  and  contents 
of  a  charter,  or  articles  of  incorporation,  and  the  state  in  which 
the  incorporation  should  take  place.  The  general  nature  of  the 
contents  of  such  a  charter  had  been  discussed  practically  as  long 
as  the  idea  of  a  holding  company  had  been  entertained  by  the 
men  interested  in  the  matter ;  namely,  for  something  like  seven 
or  eight  years.  The  specific  nature  of  such  a  charter  for  this 
particular  company  was  not  made  the  object  of  study  until  after 
the  Arbitration  Agreement  of  May  31,  1901.  About  this  time 
several  men  began  an  examination  of  the  laws  of  a  number  of 
states  for  the  purpose  of  discovering  a  suitable  charter  and  of 
deciding  upon  the  state  in  which  the  company  should  be  in- 
corporated. The  decision  with  reference  to  the  place  of  incor- 
poration was  not  made  until  a  few  days  before  the  company 
was  actually  incorporated.  The  general  aim  in  searching  for  a 
charter  and  a  state  "  was  to  have  beyond  any  question  the  power 
to  purchase,  own  and  hold  and  dispose  of  corporate  securities 
on  a  large  scale."  Between  June  and  October  several  different 
sketches  of  articles  of  incorporation  were  made  and  submitted 
to  seven  or  eight  men.  These  men  were  scattered  so  that  no 
formal  meeting  for  the  consideration  of  the  articles  was  ever 
held.  The  sketch  referred  to  left  blank  the  name  of  the  coipo- 
ration,  the  name  of  the  state  in  which  it  was  to  be  incorporated, 
and  the  amount  of  the  capital  stock.  "•  There  was  practically  no 
change  in  the  substance  of  it  from  the  beginning."  Among  the 
earliest  efforts  was  a  search  for  a  special  charter  granted  by  the 
territory  of  Minnesota  prior  to  the  adoption  of  the  constitution 
of  1858.  "  A  large  number  of  special  charters  that  were  passed 
when  Minnesota  was  a  territory  have  been  very  nnich  sought 
after  and  extensively  used  by  railroads  that  have  since  been 
built,  by  financial  institutions  of  various  kinds  and  business  cor- 
porations."   The  old  enactments  were  glanced  through  with  a 


564  KAIJ.WAV   PJIOl^LEMS 

view  of  seeing  if  there  was  anything  that  would  meet  the  desires 
and  purposes  of  the  contemplated  organization,  because  "-under 
our  constitution  all  charters  antedating  the  admission  of  the 
state  into  the  union  became  fixed  legislative  contracts."  Such 
a  special,  territorial  charter  could,  however,  not  be  found  ;  nor 
could  a  later  charter  suitable  for  the  occasion  be  discovered. 
Hence,  recourse  was  had  to  the  general  incorporation  laws  of 
Minnesota,  New  York,  New  Jersey,  and  probably  also  of  West 
Virginia.  The  Minnesota  statutes  were  regarded  as  too  "new 
in  that  class  of  corporations.  There  are  no  large  business  corpo- 
rations incorporated  under  the  laws  of  the  state  of  Minnesota; 
she  never  has  had  any.  There  has  been  no  occasion  to  put 
powers  that  are  given  by  her  general  statutes  to  such  organiza- 
tions under  judicial  question."  Furthermore,  her  own  citizens, 
it  was  asserted,  go  to  other  states  for  the  incorporation  of  enter- 
prises of  any  magnitude.  Whether  West  Virginia  was  any  more 
than  mentioned  in  this  connection  does  not  appear.  As  between 
the  statutes  of  New  York  and  New  Jersey,  the  choice  fell  upon 
the  latter  because  they  had  been  in  force  a  good  many  years 
and  were  regarded  as  "•  thoroughly  well  settled."  Those  of  New 
York,  on  the  other  hand,  while  they  were  quite  similar  to  those 
of  New  Jersey,  and  "•  had  evidently  been  passed  with  a  view  of 
enlarging  her  legislation  to  put  it  on  a  parity  with  New  Jersey," 
were  of  very  recent  origin,  and  had  not  been  construed  by  the 
courts.  In  this  connection,  reference  may  be  made  to  a  pamphlet 
entitled  "Advantages  of  the  General  Corporation  Act  of  New 
Jersey,"  published  without  reference  to  the  Securities  Company, 
in  which  the  author  of  it  points  out  that  since  1846  the  policy 
of  New  Jersey  towards  capital  has  been  that  of  "  liberality." 
The  changes  introduced  in  the  law  since  then  have  made  it 
"simpler,  more  liberal  and  less  burdensome."  Since  1896,  when 
the  law  was  again  revised  and  codified,  its  salient  features  have 
been  simplicity  of  organization  and  management,  freedom  from 
undue  publicity  in  the  private  affairs  of  the  company,  and 
facility  of  dissolution. 

The  charter,  which  was  finally  taken  out  in  the  state  of  New 
Jersey,  is  in  many  respects  similar  to  the  charters  of  other  great 


THE  NOETHERJsT   SECURITIES  COMPANY         565 

corporations.  It  has  many  points  in  common  with  the  charters 
of  the  United  States  Steel  Corporation,  and  the  Standard  Oil 
Company,  except  that  the  Northern  Securities  charter  does  not 
grant  the  omnibus  powers  conferred  by  the  others.  The  Stand- 
ard Oil  Company  and  the  United  States  Steel  Corporation  can 
engage  in  practically  every  conceivable  kind  of  enterprise,  while 
the  Northern  Securities  charter  limits  the  company  to  the  acqui- 
sition of  valuable  paper  held  by  domestic  and  foreign  corpora- 
tions, exercising  the  rights  of  property  over  the  same,  aiding 
cor^jorations  whose  paper  is  thus  held,  and  acquiring  and  holding 
the  necessary  real  and  personal  property.  The  amount  of  the  cap- 
ital stock  with  which  the  corporation  began  business  was  thirty 
thousand  dollars,  while  the  total  authorized  capital  stock  of  the 
corporation  is  four  hundred  million  dollars.  The  customar}- 
oiftcers  and  committees  are  provided  for  and  the  usual  powers 
conferred  upon  them.  A  board  of  fifteen  directors  was  elected, 
six  of  whom  represented  Northern  Pacific  interests ;  four,  the 
Great  Northern,  not  counting  the  president ;  three,  the  Union 
Pacific;  and  two,  unclassified.  The  composition  of  the  board 
on  the  community  of  interest  plan  was  one  of  the  points  of 
attack  subsequently  pursued  by  the  state  and  federal  authori- 
ties. Such  an  arrangement  had  numerous  precedents,  however. 
Chauncey  M.  Depew  is  an  officer  or  director  of  fifty-six  trans- 
portation companies ;  W.  K.  Vanderbilt  of  fifty-one  ;  Geo.  J. 
Gould  of  thiity-five  ;  E.  V.  Rossiter  of  thirty-one  ;  E.  H.  Har- 
riman  of  twenty-eight  ;  Charles  F.  Cox  of  twenty-seven ;  D.  S. 
Lamont  of  twenty-four ;  J.  P.  Morgan  of  twenty-three,  and  so 
on  through  a  list  of  more  than  a  hundred  names. 

Much  testimony  was  elicited  with  respect  to  the  capitaliza- 
tion and  the  ratio  at  which  the  Northern  Pacific  and  Great 
Northern  shares  Avere  exchanged  for  Northern  Securities  stock. 
It  seems  that  the  capitalization  of  $400,000,000  was  fixed  at 
that  figure  in  order  to  cover  approximately  the  combined  capi- 
tal stock  of  the  Northern  Pacific  and  Great  Northern  at  an 
agreed  price  apparently  based  upon  earning  capacity.  The  par 
value  of  the  outstanding  capital  stock  of  the  Great  Northern 
was  if)l 23,880,400  and  that  of  the  Northern  Pacific  amounted 


5GG  EAILWAY  PROBLEMS 

to  $155,000,000.  The  Northern  Securities  Company  purchased 
about  seventy-six  per  cent  of  the  former  and  ninety-six  per 
cent  of  the  latter,  on  the  basis  of  $115  per  share  of  $100  of 
Northern  Pacific  and  $180  per  share  of  $100  of  the  Great 
Northern.  The  purchase  of  the  stock  of  the  two  railway  com- 
panies by  means  of  the  shares  of  the  Securities  Company  was 
effected  by  and  through  the  stockliolders  as  such.  An  offer  to 
make  the  purchase  was  conveyed  to  the  Great  Northern  stock- 
holders in  a  circular  letter.  This  circular  called  forth  numer- 
ous inquiries,  in  response  to  which  President  Hill  sent  out  a 
letter  setting  forth  the  purposes  of  the  company  and  suggest- 
ing that  "  the  offer  of  the  Securities  Company  is  one  that  Great 
Northern  shareholders  can  accept  with  profit  and  advantage  to 
themselves."  It  was  the  expressed  w4sh  of  the  leading  stock- 
holders of  the  Great  Northern  that  all  of  them  should  be  dealt 
with  on  a  basis  of  absolute  equality,  irrespective  of  the  amount 
of  their  holdings.  This  appears  to  have  been  done.  In  case  of 
the  Northern  Pacific  no  circular  letter  appears  to  have  been  sent 
out  to  stockholders  ;  nor  were  the  same  rules  of  equality  applied 
to  them,  for  the  Union  Pacific  interests  received  a  cash  premium 
of  $8,915,629  in  the  exchange  of  their  Northern  Pacific  hold- 
ings on  the  agreed  basis  for  $82,492,871  par  value  of  the 
Northern  Securities  stock.  It  also  seems  that  the  promoters  of 
the  Northern  Securities  Company  had  an  understanding  with 
the  holders  of  at  least  a  majority  of  the  common  stock  of  the 
Northern  Pacific  Railway  Company  that  they  would  exchange 
that  stock  for  the  stock  of  the  Northern  Securities  Company  as 
soon  as  organized  ;  and  also  an  agreement  that  the  preferred 
stock  of  the  Northern  Pacific  should  be  retired  on  the  first  day 

of  January  following.^ 

Balthasae  H.  Meyer 


1  Practically  the  full  text  of  the  decision  of  the  United  States  Supreme  Court, 
declaring  the  Northern  Securities  Company  illegal,  is  reprinted  in  our  Trusts, 
Pools,  and  Corporations,  pp.  322-382.  The  corporation  is  now  in  process  of 
dissolution.  —  Ed. 


I 


XXII 

THE   DECISION   ON  THE  UNION  PACIFIC 
MERGER 1 

"Tj^VER  since  the  decision  in  the  Northern  Securities  case 
-*-^  dissolving  the  merger  of  the  Hill  lines,  it  has  seemed  prob- 
able that  an  attempt  would  be  made  to  break  up  the  equally 
powerful  Harriman  system  in  the  Southwest.  It  is  true  that  the 
facts  in  the  two  instances  were  not  altogether  the  same.  The 
component  parts  of  the  Harriman  lines  were  not  competitors 
before  their  union  in  any  such  obvious  way  as  the  Great  North- 
ern and  Northern  Pacific  had  been,  while  the  combmation  of  the 
Union  and  Southern  Pacific  was  not  accomplished  through  a 
holdmg  company  formed  for  the  purpose,  but  came  about  through 
a  stock  purchase  by  a  genuine  operatmg  company.  Doubtless  for 
these  reasons  prosecution  was  postponed  until  less  equivocal 
cases  had  been  disposed  of.  The  delay  had  the  advantage,  as 
matters  turned  out,  of  allowing  a  prior  mvestigation  by  the 
Interstate  Commerce  Commission;  so  that  the  Government  was 
enabled  to  incorporate  in  its  record  a  large  amount  of  evidence 
presented  in  January  and  February,  1907,  without  the  expense 
of  takmg  the  testimony  itself.^ 

The  suit  for  dissolution  under  the  Sherman  law  was  finally 
brought  by  the  United  States  before  the  Circuit  Court  for  the 
District  of  Utah.  The  Government  named  as  defendants  the 
Union  Pacific  and  its  subsidiary  companies,  the  Southern  Pacific, 
the  Santa  Fe,  the  San  Pedro,  Los  Angeles,  and  Salt  Lake,  the 

1  From  the  Quarterly  Journal  of  Economics,  Vol.  XXVII,  1913,  pp.  205-328. 
The  legal  aspects  of  combination  and  the  financial  history  of  the  Harriman 
system  will  be  outlined  in  Ripley's  Kailroads :  Finance  and  Ori^anization. 
(In  preparation.) 

2  References,  unless  otherwise  stated,  are  to  the  record  submitted  to  the 
Supreme  Court.  The  testimony  and  exhibits  in  the  Merger  case  fill  thirteen 
volumes  and  constitute  an  important  addition  to  the  source  material  on  railroad 
transportation. 

507 


oils  RAILWAY  PROBLEMS 

NortluMu  Piicifu',  tlio  (xrcat  Nortlu'in  ;  ci'rtain  individuals, — 
Edward  11.  1  laniinaii,  Jacob  11,  ScliilT,  Otto  II.  Ivalin,  James 
Stillmaii,  lleiuy  II.  Rogers,  Henry  C  Friek,  and  William  A. 
Clark  :  and  the  Farmers'  Loan  and  Trust  Company,  tlie  deposi- 
tary of  tile  San  Pedro  shares  under  tlie  trnst  agreement  of  1902. 
It  asked  decrees  forbidding  the  Union  Paeilic,  ()reg(m  Short  Line, 
and  Oregon  Raih'oad  and  Navigation  Companies  from  voting 
shares  of  the  other  companies  named  in  the  petition,  and  also 
decrees  enjoining  these  other  companies  from  recognizing  any 
shares  which  the  Ihiion  Pacific  and  its  subsidiaries  might  happen 
to  hold.  Briefs  were  filed  by  P.  F.  Dunne  and  N.  H.  Loomis  for 
the  Union  Pacilic  and  its  subsidiaries  and  for  the  Southern 
Pacific.  A  separate  brief  was  submitted  for  Mr.  Frick,  and  a 
memorandum  in  behalf  of  Messrs.  Stillman,  Scliiff,  and  Kahn. 
The  Government's  case  was  directed  by  Frank  B.  Kellogg  and 
Cordenio  A.  Severance,  with  the  Attorney  General's  assistance 
in  the  preparation  of  the  brief.  All  of  these  gentlemen  had  been 
employed  before  in  prosecutions  under  the  Sherman  law,  and 
Messrs.  Kellogg  and  Severance  had  tried  the  case  against  the 
Southern  Pacific  in  the  Circuit  Court.  Mr.  Severance,  however, 
bore  the  burden  of  examining  and  cross-examining  witnesses  in 
the  case  at  bar,  and  was  the  best  informed,  as  he  was  perhaps  the 
ablest,  of  the  Government  counsel. 

The  original  report  of  the  Interstate  Commerce  Commission 
had  dealt  with  the  Harriman  lines  as  a  great  combination  of 
competing  railroads.^  The  Circuit  Court  rendered  its  decision  on 
June  24,  1911,  and  contrary  to  general  expectation  this  proved 
unqualifiedly  adverse  to  the  Government's  contentions.  The  case 
turned  on  the  question  of  competition.  Two  judges  ruled  that 
the  Union  Pacific  and  the  Southern  Pacific  were  connecting  and 
only  incidentally  competing  lines.^  Judge  Hook  filed  a  dissenting 
opinion.  Appeal  was  taken  to  the  Supreme  Court  in  October 
of  the  same  year. 

The  facts  in  the  case  seem  reasonably  clear.  The  so-called 
Harriman  group  of  railroads  in  1912  comprised  a  mileage  of 

1  12  I.  C.  C.  Rep.  277.  2  iss  Fed.  Rep.  102. 


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570  RAILWAY    P1{()1;T.EMS 

about  18,500  miles.  It  stretched  from  Omaha,  Kansas  City,  and 
New  Orleans  on  the  east  to  Los  Angeles,  San  Francisco,  and  Port- 
land on  the  west,  and  by  means  of  the  IMorgan  Steamship  Line  it 
reaclu'd  New  York.  In  addition  it  owned  a  majority  of  stock  in 
the  Paeilic  ALiil  Steamship  Company,  which  carries  freight  and  pas- 
sengers from  the  Pacitic  coast  to  the  Orient  and  to  Panama.  Of 
the  total  mileage  west  of  the  Mississippi-Missouri  river  and  south 
of  the  Northern  Pacific  Railroad  the  Harriman  management  con- 
trolled 1 9  per  cent.  Finally,  through  stock  ownership  in  the  Illhiois 
Central,  the  Chicago  and  Alton,  and  other  lines,  and  by  contract 
with  the  San  Pedi'o,  Los  Angeles,  and  Salt  Lake,  it  possessed  in 
varying  degree  influence  over  connecting  and  competing  roads. 

The  different  parts  of  tlie  system  were  held  together  by  a 
rather  complex  system  of  intercorporate  stockholdings.  The 
keystone  of  the  structure  was  the  Union  Pacific  Railroad,  which 
held  in  its  treasury  all  the  stock  of  the  Oregon  Short  Line,  most 
of  the  stock  of  the  St.  Joseph  and  Grand  Island,  and  consider- 
able quantities  of  the  shares  of  the  Illinois  Central  and  of  the 
Cliicago  and  Alton.  The  Oregon  Short  Line  in  its  turn  owned 
half  of  the  stock  of  the  San  Pedro,  Los  Angeles,  aiul  Salt  Lake, 
substantially  all  of  the  stock  of  the  Oregon-Washington  Railroad 
and  Navigation  Company,  46  per  cent  of  the  shares  of  the  South- 
ern Pacific  Company,  and  mterests  in  the  Baltimore  and  Ohio, 
New  York  Central,  Chicago  and  Northwestern,  and  other  lines. 
The  Southern  Pacific  Company,  most  important  of  all  the  Union 
Pacific  subsidiaries,  was  a  holding  company,  which  owned  sub- 
stantially all  the  stock  of  the  Central  Pacific,  the  Southern 
Pacific  Railroad,  the  Galveston,  Harrisburg,  and  San  Antonio 
and  other  roads  in  the  Southwest,  the  Southern  Pacific  Railroad 
Company  of  Mexico,  the  Oregon  and  California,  and  other  less 
important  companies.  The  Southern  Pacific  Company  also  leased 
and  operated  the  Central  Pacific,  the  Southern  Pacific  Railroad, 
the  Oregon  and  California,  and  the  Southern  Pacific  Coast  Rail- 
way. Including  the  Illinois  Central  the  securities  of  the  Harriman 
companies  outstanding  aggregated  some  $2,600,000,000,  of  which 
$1,650,000,000  were  in  the  hands  of  the  public. 

Tlu'ee  periods  may  be  segregated  in  the  growth  of  the  system. 


HAREIMAN^   SYSTEM  DISSOLUTION  571 

The  shares  which  the  Union  Pacific  possessed  in  the  capital  of 
the  Oregon  Short  Line,  the  holdings  of  the  Short  Line  in  the 
Oregon-Washmgton  Railroad  and  Navigation  Company,  and  the 
holdings  of  the  Southern  Pacific  Company  in  the  railroads  of 
the  Southwest  and  in  the  Central  Pacific  represented  the  normal 
growth  of  the  Pacific  railways  which  had  been  chartered  in  1862 
and  1864.  The  construction  of  the  Short  Lme  was  undertaken 
by  Union  Pacific  interests  in  order  to  secure  a  connection  with  the 
Pacific  coast,  and  was  financed  in  return  for  the  stock  of  the  com- 
pany and  a  portion  of  its  bonds.  The  Oregon  Railwa}-  and  Navi- 
gation Company  ^  was  purchased  for  the  same  reason,  under  the 
very  nose  of  the  Northern  Pacific.  In  like  manner,  the  parties 
which  originally  built  the  Central  Pacific  constructed  additional 
track  southward  along  the  Calif  ornian  coast,  and  then  east  through 
Arizona,  New  Mexico,  and  Texas.  As  a  pure  matter  of  conven- 
ience they  organized  different  companies  as  they  went  along,  and 
finally  welded  all  together  by  means  of  stock  control.  It  was  in 
the  second  period  that  the  control  of  the  Salt  Lake  Company  by 
the  Union  Pacific  and  Oregon  Short  Line  was  secured,  and  then 
also  that  the  L^nion  Pacific  bought  its  holdings  in  the  Southern 
Pacific.  About  the  same  time  shares  were  purchased  in  the 
Northern  Pacific  which  were  later  sold  again.  The  third  period 
began  with  the  dissolution  of  the  Northern  Securities  Company 
and  represents  the  result  of  reinvestment  of  the  sums  secured 
from  the  sale  of  Northern  Pacific  and  Great  Northern  stock. 
Among  other  securities  certain  shares  •  in  the  Santa  Fe  were  ob- 
tained. For  the  purposes  in  hand  we  have  to  deal  mainly  with 
the  second  group  of  purchases,  as  these,  with  the  addition  of  the 
Santa  Fe  operation,  were  the  basis  of  the  Government  suit.  The 
characteristic  feature  of  the  earlier  and  later  development  was 
the  acquisition  of  connecting  lines  ;  only  in  the  middle  jjcriod,  if 
at  all,  was  competition  suppressed. 

It  is  a  matter  of  common  knowledge  that  as  late  as  1901  the 
Union  and  Southern  Pacific  companies  were  entirely  independent. 
Of  the  original  builders  of  the  Southern  Pacific,  Hopkins  had 

1  Later  expanded  into  the  Oregon-Washington  Railroad  ami  \':i\  iuation 
Company. 


572  KAILWAV    rUOlJLEMS 

died  in  1878,  Crocker  in  1888,  and  Stanford  in  1893;  but  until 
August,  1900,  Mr.  Collis  P.  Huntington,  then  holding  37^  per 
cent  of  all  the  Southern  Pacific  stock  outstanding,  refused  to 
compromise  in  any  way  his  company's  separate  existence.  The 
record  shows  that  proposals  were  made  to  him.  The  Union 
Pacilic,  dependent  on  the  Southern  Pacific  for  direct  connection 
with  San  Francisco,  and  fearful  lest  at  Mr.  Huntington's  death 
his  stock  should  fall  into  unfriendly  hands,  offered  to  purchase 
his  shares,  or  failing  this  to  conclude  a  permanent  alliance.  To 
this  offer  Mr.  Huntington  remained  indifferent.  Huntington 
died,  however,  in  August,  1900,  leaving  his  Southern  Pacific 
stock  to  his  widow  and  nephew  in  the  proportion  of  two-thirds 
and  one-third  respectively ;  and  both,  as  had  been  anticipated, 
proved  willing  to  dispose  of  their  holdings.  Negotiations  were 
carried  to  completion  in  February,  1901.  475,000  shares  were 
purchased  from  the  Huntmgtons  and  from  Edwin  Hawley,  the 
late  financier's  most  intimate  business  associate,  while  enough  was 
secured  from  other  parties  through  Kulm,  Loeb  and  Company 
to  make  an  aggregate  of  677,700  shares,  at  an  average  price  of 
50.6146.  Market  quotations  were  then  in  the  neighborhood  of 
45  per  cent.  On  February  4,  Kuhn,  Loeb  and  Company  engaged 
to  deliver  to  the  Union  Pacific  one  month  later  72,300  addi- 
tional shares  at  the  same  price,  plus  4  per  cent  interest  from 
February  11,  brhiging  the  company's  holdings  up  to  750,000 
shares.  This,  in  Mr.  Harriman's  opinion,  was  sufiicient  for  con- 
trol. A  year  or  two  later  an  attempt  to  force  the  Southern 
Pacific  to  pay  in  dividends  earnings  which  its  managers  thought 
should  be  expended  in  improvements  led  the  Union  Pacific  to 
acquire  still  another  150,000  shares.  In  January,  1910,  purchases 
were  renewed  for  the  last  time,  in  view  of  pending  legislation  in 
Congress  which  promised  to  make  the  possession  of  an  absolute 
majority  of  Southern  Pacific  stock  desirable  ;  but  these  purchases 
ceased  after  74,000  shares  had  been  obtained,  and  50,000  shares 
were  subsequently  sold.  This  concluded  the  episode.  On  June  30, 
1911,  the  Union  Pacific  through  the  Oregon  Short  Line  owned 
1,266,500  shares  of  Soutliern  Pacific  common,  or  46  per  cent  of 
all  outstanding  —  sufficient  to  give  undisputed  control. 


HAllRIMAN   SYSTEM  DISSOLUTION  573 

It  was  stoutly  maintained  by  jNIr.  Kalm,  of  Kulm,  Loeb  and 
Company,  that  the  desire  to  control  the  ISoutheru  Pacific  line 
from  San  Francisco  to  El  Paso  was  not  a  motive  in  the  trans- 
actions described.  The  necessity  of  buying  the  Sunset  Route,  he 
said,  was  considered  an  obstacle  and  a  deterring  feature.  If  a 
way  could  have  been  found  to  secure  the  Central  Pacific  alone, 
it  would  have  bfeen  preferred  at  the  time.  The  possible  reduction 
of  competition  was  not  even  considered  at  any  of  the  meetings 
of  the  Executive  Committee  at  which  the  subject  was  brought 
up.  The  same  was  true  of  the  acquisition  of  the  boat  Imes  to  the 
Orient,  the  business  to  Colorado  and  Utah  points,  and  other 
mmor  phases.^  Speaking  of  the  Southern  Pacific,  Mr,  Kahn 
declared : 

We  kflew  it  would  require  a  great  deal  of  money  to  be  spent  on  it, 
we  knew  it  added  thousands  of  miles  to  the  burden  of  administration 
and  management.  We  were  very  anxious  that  the  Union  Pacific  should  re- 
ceive as  much  of  the  administrative  ability  and  of  the  railroad  genius  of 
Mr.  Harriman  as  it  was  possible  for  him  to  give  it,  and  we  were  rather  dis- 
inclined to  put  upon  him  any  more  burden  than  was  necessaiy  to  the  best 
development  of  the  Union  Pacific  ;  and  therefoi-e  we,  individually,  felt  that 
if  the  Southern  Pacific  could  be  separated,  keej^ing  only  the  Central  Pacific 
and  the  north  and  south  lines  in  California,  and  getting  rid  of  the  southern 
part  of  the  Southern  Pacific,  we  would  be  getting  rid  of  a  nuisance.'^ 

Some  plausibility  was  given  to  this  contention  by  Mr.  Gfjuld's 
later  admission  that  he  had  reciuested  a  half  hiterest  in  the 
Southern  Pacific  purchase,  and  had  told  Mr.  Harriman  tliat  if 
the  Union  Pacific  did  not  take  the  sto(;k  he  would  take;  it  liim- 
self  for  his  roads.^  At  this  time  the  Could  lines  ended  at  Cgden, 
and  the  control  by  them  of  the  Central  Pacific  would  have  been 
disastrous  to  Union  Pacific  interests.  There  was  also  talk  of 
possible  construction  to  Ogden  by  the  Burlington  or  the  Chicago 
and  Northwestern.  No  proof  of  intt'ut  is  now  possible.  One  can 
only  surmise  that  Mr.  Harriman  Avas  inilikely  to  luue  overlooked 
the  great  extension  of  his  power  in  the  Southwest  which  ac(jui- 
sition  of  the  Sunset  Route  was  bound  to  bring,  whatever  might 
have  been  true  of  the  bankers  who  were  supporting  liiiii. 

1  Pp.  471:^-4714  Kahn.  2  i>.  47;]]  Kahiu  »  Pp.  4952-4957  Gould. 


574  KAILWAV  nior.T.EMS 

A  few  years  after  the  Southern  Pacific  purchase,  the  San 
Pedro,  Los  Angeles,  and  Salt  Lake  was  brought  into  the  fold. 
This  line  runs  from  Salt  Lake  City  southwesterly  to  Los  Angeles, 
cuttuig  three  or  four  hundred  miles  from  the  route  via  Sacra- 
mento, and  givmg  to  the  Union  Pacific  yet  another  independent 
outlet  to  the  coast.  It  appears  that  the  project  had  been  origi- 
nally planned  by  Union  Pacific  interests  and  over  a  million  dollars 
spent ;  but  that  the  plans  had  been  interrupted  by  the  LInion 
Pacific  bankruptcy  and  had  not  been  resumed  until  1898.^  In 
that  year  the  Oregon  Short  Line  made  a  contract  with  a  man 
named  Eceles  and  his  associates,  who  engaged  to  form  a  company 
and  to  build  a  railroad  along  the  old  grade  for  some  seventy -five  or 
eighty-five  miles.  Under  this  contract  sixty-six  miles  were  built,^ 
when  construction  ceased.  About  1900  the  matter  was  taken  up 
by  parties  in  Los  Angeles,  and  Senator  Clark  became  interested.^ 
Land  for  a  terminal  was  applied  for  in  Salt  Lake  City  and  sup- 
port asked  for  on  the  ground  that  the  new  line  would  be  inde- 
pendent of  the  Southern  Pacific.^  By  June,  1901,  the  San  Pedro  ■ 
Company  had  raised  $2,501,600,  had  obtained  in  the  neighbor- 
hood of  one  hundred  acres  of  land  in  Los  Angeles  favorably 
situated  for  terminals,  and  through  the  Los  Angeles  Terminal 
Railway  Company  had  acquired  about  three  miles  of  water  front 
on  the  Bay  of  San  Pedro,  California.^  One  hundred  and  ten 
miles  of  the  proposed  main  line  from  Los  Angeles  toward  Salt 
Lake  had  been  surveyed,  ninety  miles  located,  and  right  of  way 
for  thirty  miles  secured.*^  These  vigorous  efforts  led  to  renewed 
activity  on  the  part  of  the  Union  Pacific  system,  although  the 
original  reasons  for  construction  had  lost  force  after  its  consoli- 
dation with  tlie  Southern  Pacific  lines.  An  option  on  the  Eceles 
mileage  (Utah  and  Pacific  Company)  was  taken  up,  forty-two 
miles  were  built  on  towards  Caliente,  surveys  were  made  towards 
Los  Angeles,  and  litigation  was  begun  with  the  Clark  interests 
over  the  right  of  way  through  certain  narrow  passes  through 
which  both  roads,  if  constructed,  would  have  to  run.   It  was  from 

1  p.  2435  Eceles.  *  P.  2460  Love. 

2  Pp.  2435  et  seq.  Eceles.  s  Pp.  ,3278-3279  Clark. 
8  Pp.  3282  et  seq.  Gibben.  ^  P.  3280  Clark. 


HARRIMAN  SYSTEM  DISSOLUTION  575 

the  beginnmg-  evident  that  two  raih-oads  through  this  district 
would  not  pay,i  and  the  San  Pedro  Company  came  to  terms.  In 
July,  1902,  the  Clark  people  sold  to  the  Harriman  lines  an  un- 
divided half  interest  in  the  enterprise  and  agreed  to  the  trusteeing 
of  all  the  stock  for  ten  years.  Directors  were  to  be  equally  divided 
between  the  two  parties  and  various  traffic  and  other  agreements 
effectually  prevented  independent  action  as  to  rates. 

The  abortive  attempt  to  control  the  Northern  Pacific  in  1901 
needs  only  a  bare  reference.^  It  had  no  result  except  to  provide 
the  Union  Pacific  abundantly  Avitli  funds  tliat  could  be  used  in 
future  expansion.  It  should  be  remarked,  however,  that  an 
interest  in  the  Santa  Fe  was  acquired  in  190G,  at  a  time  of  active 
rivalry  between  Santa  Fe  and  Southern  Paciiic  interests.  The 
Santa  Fe  was  then  and  still  is  the  onl}^  road  connectmg  San 
Francisco  and  Chicago  by  its  own  rails  (except  for  a  few  miles 
in  California  where  Southern  Pacific  tracks  are  used),  and  the 
only  one  of  importance  apart  from  the  Harriman  lines  that 
penetrates  the  Southwest.  In  1901  projects  for  Santa  Fe  exten- 
sion in  Arizona  were  under  discussion.  The  company  had  just 
bought  the  stock  and  second  mortgage  bonds  of  the  Santa  Fe, 
Prescott,  and  Phoenix,  a  road  running  from  Ash  Fork  on  the 
Santa  Fe  main  line  south  and  southeast  through  Prescott  to 
Phoenix.  The  county  was  not  a  rich  one,  but  it  had  mhieral 
possibilities,  and  expected  a  considerable  agricultural  develop- 
ment through  irrigation.  The  president  of  the  last-named  com- 
pany was  one  Frank  Murphy,  whom  Mr.  iVIorawetz,  chairman  of 
the  executive  committee  of  the  Santa  Fe,  characterized  as  an 
enthusiastic  son  of  Arizona.^  Mr.  INIurphy  was  anxious  tliat  tlie 
Phoenix  road  should  l)e  extended  south  to  Benson,  where  con- 
nection could  be  made  with  the  El  Paso  and  Southwestern  and 
a  direct  and  independent  outlet  secured  to  the  Gulf  over  this 
road  and  the  Texas  and  Pacific  from  El  Paso.  It  is  obvious  that 
this  was  of  great  importarce  to  the  Santa  Fe,  Prescott,  and 
Phoenix  so  long  as  it  remained  independent.    To  the  Santa  Fe 

1  P.  2509  Kearns. 

2  Vide  Chapter  XXI,  supra:  and  Ripley,  Railroads  :  Finance  and  Organiza- 
tion. —  Ei>.  ^  r.  1139  Morawetz. 


571)  RAILWAY  PROBLEMS 

it  was  less  vital-  TralliL'  wliiuli  could  be  taken  on  Atchison  rails 
clear  to  Chicago  was  scarce  likely  to  be  given  to  another  road  at 
Benson,  and  although  part  of  the  proposed  road  might  have  been 
used  in  a  new  low-grade  route  through  Southern  Arizona  and 
New  Mexico  to  Deming  —  a  route  parallel  with  the  Santa  Fe's 
existing  line  and  about  one  hundred  and  lii'ty  miles  longer  —  the 
construction  of  this  route  was  not  immediately  in  prospect.  For 
these  reasons,  and  because  tlie  local  bushiess  of  the  extension  did 
not  look  attractive,  Mr.  Morawetz  refused  to  undertake  it.^ 
]Mr.  Murphy  promptly  organized  a  new  company,  the  Phoenix  and 
Eastern,  made  surveys,  secured  rights  of  way,  and  negotiated  for 
a  trackage  contract  with  the  El  Paso  and  Soutliwestern.^  Seeing 
that  the  road  was  to  be  built,  the  Santa  Fe  decided  that  it  had 
better  build  it  itself,  and  arranged  m  1902  for  construction  as 
far  as  Dudleyville,  half-way.^  Shortly  after  surveys  were  made 
for  an. eastern  extension  from  Dudleyville  toward  the  Santa  Fe 
tracks  at  Deming,  and  a  new  road  was  mcorporated  to  build 
through  the  Gila  canyon.'* 

The  construction  south  of  Phoenix  the  Southern  Pacific  re- 
garded as  an  invasion  of  its  territory.  Harriman  graders  occupied 
a  canyon  above  the  line  of  the  Phoenix  and  Eastern  and  pro- 
ceeded to  blast  down  rocks  upon  their  rival's  right  of  way.^  The 
next  step  was  to  ask  the  Santa  Fe  to  sell  to  the  Southern  Pacific 
the  constructed  part  of  the  Phoenix  and  Eastern,  and  to  retire 
from  the  country  in  which  it  lay.*^  Mr.  Morawetz  was  not  unwill- 
mg  to  make  the  sale.  He  seized  the  opportunity,  however,  to 
secure  certain  advantages  in  northern  California.  In  the  summer 
of  1902,  as  he  explained  in  his  testimony,  the  Atchison  had  con- 
cluded that  it  would  be  desirable  to  extend  its  system  north  of 
San  Francisco  Bay.  Negotiations  were  begun  for  the  purchase 
of  the  stock  of  the  California  and  Northwestern,  but  this  stock 
was  sold  to  Southern  Pacific  interests  before  the  Atchison  pur- 
chase was  completed.'''  Thereupon  the  Atchison  bought  the  stock 
of  a  short  Ime  running  out  of  Eureka,  about  one  hundred  miles 

1  P.  1133  Morawetz.  «  p,  5000  Murphy.  6  P.  1134  Morawetz. 

2  P.  llf)2  Douglas.  5  p.  1025  Murphy.  ^  p.  1134  Morawetz. 

3  P.  1133  Morawetz. 


HAEEIMAN  SYSTJSM  DISSOLUTION  577 

north  of  San  Francisco.  This  raih'oacl  did  a  considerable  pas- 
senger business  and  handled  a  good  deal  of  lumber,  but  connected 
with  San  Francisco  only  by  boat.^  It  was  intended  to  build  south 
to  San  Francisco,^  but  tlie  construction  would  have  been  expen- 
sive, and  the  volume  of  busmess  probably  insufficient  to  support 
both  a  Southern  Pacific  and  a  Santa  Fe  line.  The  dispute  in 
Arizona  gave  j\Ir.  JNlorawetz  the  idea  of  attachmg  to  his  consent 
to  sell  the  Phoenix  and  Eastern  (at  cost  and  interest)  the  condi- 
tions that  Mr.  Harriman  sell  him  at  the  same  time  a  half  interest 
in  the  coast  Imes  north  of  San  Francisco  Bay.  INIr.  Harriman  at 
first  refused,^  but  later  agreed.  As  part  of  the  same  arrangement 
the  Southern  Pacific  agreed  to  have  built  a  low-grade  line  be- 
tween Phoenix  and  Deming  and  the  Santa  Fe  a  line  between 
Phoenix  and  Mojave  —  each  company  to  have  trackage  rights 
over  the  other's  road  on  mutually  satisfactory  terms  upon  request.* 
It  was  while  the  relations  between  the  Santa  Fe  and  the 
Southern  Pacific  were  thus  subjects  of  dispute  that  J\Ir.  Harriman 
informed  jNIr.  JNlorawetz  that  he  and  some  of  his  associates 
(Wm.  Rockefeller,  H.  II.  Rogers,  Jas.  Stillman,  and  Kulm,  Loeb 
and  Company)  ^  had  purchased  300,000  shares  of  Atchison  stock 
and  desired  representation  on  the  Board  of  Directors.  He  called 
attention  to  the  general  desu'ability  of  establishing  a  better  re- 
lationship between  railroads,  and  offered  Mr.  Morawetz  a  place 
on  the  executive  committee  of  the  Southern  I'acific ;  but  stated 
that  the  stock  referred  to  had  been  bouglit  as  a  private  invest- 
ment. Mr.  Morawetz  declined  to  consider  a  change  in  the  directo- 
rate until  the  differences  between  the  Santa  P'e  and  the  Harriman 
lines  should  have  been  adjusted.  By  February,  11)05,  an  agreement 
had  been  reached,  and  Messrs.  Rogers  and  Frick  were  elected  to 
the  Atchison  Board.^  The  bulk  of  the  holdings  of  Mr.  Harriman 
and  his  associates  had  been  sold  by  the  latter  part  of  IDOO,  l)ut  by 
this  time  the  Oregon  Short  Line  had  purchased  100,000  Atchison 
shares  ;  and  Rogers  and  Frick  retained  their  positions.  The  stock 
owned  by  the  Oregon  Short  Line  was  finally  sold  in  1909.'^ 

1  P.  500  Payson.  *  1'.  074  Dciniiig.  "^  P.  1  KW  IMorawctz. 

2  P.  512  Paysoii.  =  P.  1105  Scliiff.  ''  P.  4722  Kahii. 
8  P.  1130  Morawetz. 


578  KAILWAV   PROBLEMS 

These  were  the  bare  iiictis  on  whieh  the  Government  was  to 
base  its  charge  of  violation  of  the  law.  Tliey  raised,  it  will  be 
observed,  three  questions.  (1)  Was  there  competition  between 
the  companies  named  before  the  mcidents  occurred  which  were 
mentioned  in  the  complaint  ?  (2)  Did  these  transactions  do  away 
with  competition,  assuming  that  it  had  existed?  (3)  If  there 
had  been  competition,  and  it  had  ceased,  was  its  suppression 
brought  about  by  illegal  means  ?  Unless  all  three  questions  could 
be  answered  in  the  athrmative,  the  Government's  case  would  fail. 
In  the  eyes  of  J\Ir.  Wickersham  and  his  associates  the  facts  cited 
constituted  cumulative  evidence  of  a  conspiracy  to  restrain  and 
monopolize  interstate  and  foreign  commerce,  carried  through  by 
competing  railroads  and  by  certain  stockholders  therein.  On 
the  other  hand,  the  defendants  interpreted  the  facts  as  isolated 
transactions,  each  justified  by  the  special  circumstances  of  the 
case,  and  totally  devoid  in  intent  and  result  of  any  semblance  of 
restraint  of  trade  or  attempted  monopoly. 

In  analyzmg  the  evidence  presented,  we  may  first  direct  our 
attention  to  the  matter  which  the  Government  offered  as  proof 
of  the  existence  of  competition  between  the  Southern  and  the 
Union  Pacific  railroads,  includmg  with  the  latter  the  Oregon 
Short  Line  and  Oregon  Railroad  and  Navigation  Companies. 
This  evidence  was  vital,  and  was  given  more  attention  in  briefs 
and  testimony  than  any  other  portion  of  the  case.  The  material 
was  divided  into  seven  parts : 

1.  Competition  as  to  traffic  between  the  Atlantic  seaboard 
and  the  Pacific  coast.  The  Government  examined  no  less  than 
seventy  witnesses  —  shippers,  Southern  Pacific  employees  and 
ex-employees,  and  representatives  of  independent  railroad  lines. 
Among  those  who  testified  were  Mr.  Hawley,  for  nineteen  years 
eastern  agent  of  the  Southern  Pacific  and  after  that  a  finan- 
cier of  prommence ;  jSIessrs.  Stubbs,  Spence,  and  Munroe  of  the 
traffic  department  of  the  Southern  Pacific ;  Mr.  Paul  Morton, 
one  time  president  of  the  Equitable  Life  Assurance  Company, 
Mr.  Jeffery,  president  of  the  Denver  and  Rio  Grande,  and 
Mr.  Hannaford,  in  charge  of  traffic  on  the  Northern  Pacific. 
Substantially  all  of  these  witnesses  testified  tliat  traffic  from  the 


HARRIMAN   SYSTEM  DISSOLUTIOIS^  579 

Atlantic  seaboard  could  move  to  the  Pacific  coast  either  via 
the  ^Morgan  Steamship  line  to  Xew  Orleans  and  tlience  over  the 
Sunset  Route  of  the  Southern  Pacific  to  San  Francisco,  or  via 
the  trunk  lines  and  their  connections  to  Omaha,  thence  over  the 
Union  Pacific  to  Ogden  and  over  the  Central  Pacific  to  the  coast. 
Although  the  Southern  Pacific  was  interested  in  both  of  these 
routes,  yet  it  secured  all  the  revenue  from  freight  moving  via  the 
Sunset  lioute  and  only  30.1  per  cent  of  the  total  revenue  from 
freight  delivered  to  it  by  the  Union  Pacific  at  Ogden.  In  conse- 
quence, it  used  its  best  efforts  to  influejice  freight  to  travel  b}^  the 
southern  line.  The  Government  showed  by  the  evidence  of  shippers 
that  freight  was  actually  solicited  in  competition  between  the  two 
Pacific  companies.  The  Soutliern  Pacific,  it  appeared,  took  traffic 
at  New  York  rates  from  as  far  west  as  Buffalo  and  Pittsbure-, 
not  including  those  cities,  and  from  as  far  south  as  Norfolk.^  Not 
only  this,  but  the  Union  Pacific  was  not  altogether  restricted  to 
the  route  via  Ogden.  By  diverting  freight  at  Granger  and  sending 
it  north  to  Portland  over  the  Oregon  Sliort  Line  and  tlie  Oregon 
Railroad  and  Navigation  Company,  it  could  affect  the  transcon- 
tinental rate  m  two  ways.  In  the  first  place,  it  was  physically 
possible  for  traffic  to  move  from  Portland  to  San  Francisco  by 
boat ;  and  in  the  second  place,  a  mere  reduction  in  tlic  rate  to 
Portland  compelled  a  cut  to  every  Pacific  terminal  point  in  order 
to  maintain  these  different  cities  in  the  same  relative  position  for 
the  distribution  of  eastern  goods.  As  Mr.  Stubbs  expressed  it: 
"Let  the  rate  l)e  cut  on  tlje  Great  Nortlicrn,  and  it  goes  down 
to  the  Guff  of  California."  ^ 

Mention  may  also  be  made  in  this  connection  of  the  route  via 
the  Isthmus  of  Panama,  in  which  the  Southern  Pacilic  had  an 
interest  by  virtue  of  its  control  of  a  steamship  Ime  from  San 
Francisco  to  Panama.  The  business  was  not  large,  but  in  so  far 
as  any  moved  this  way  it  was  in  competition  willi  llic  mil  hues 
via  Ogden. 

2.  Competition  as  to  traffic  between  points  in  tlic  interior  of 
the  country  and  tlie  Pacific  coast.  Mucli  the  same  was  true  ol" 
the  traffic  from  points  between  Buffalo  and  Pittsburg  and  the 
1  P.  841  Hawley.  ^  1'.  2005  Stubbs. 


580  RAILWAY  rilOBLEMS 

Mississippi  river  tluit  held  for  the  business  from  further  east. 
It  was  phiiiily  impractieable  to  send,  them  through  New  York, 
but  goods  could  move  to  the  Gulf  and  thence  via  the  Sunset 
Route  to  California,  or  they  could  go  by  way  of  Ogden.  The 
Illinois  Central  was  the  most  important  road  in  this  territory,  and 
]Mr.  Fish,  its  president,  testified  that  the  Union  Pacific  and  the 
Sunset  Route  competed  for  traffic  originatmg  anywhere  in  Illinois 
Central  territory  as  actively  as  any  two  roads  that  were  in  the 
business.^  Rates  were  the  same  either  way,  the  competition  being 
m  service  and  solicitation.^ 

3.  Competition  as  to  traffic  between  the  Atlantic  seaboard  and 
Colorado  and  Utah  common  points.  A  good  many  sheep  wintered 
in  the  desert  west  of  Salt  Lake,  and  in  the  spring  moved  to  the 
summer  ranges  in  Idaho  where  they  were  sheared.  The  railroad 
near  which  the  shearing  took  place  secured  the  outbound  wool, 
and  for  this  reason  the  Union  Pacific,  Southern  Pacific,  and  Rio 
Grande  Western  offered  every  attraction  possible  to  influence  the 
movement  of  the  flocks.  The  Union  Pacific,  for  instance,  at  one 
time  paid  a  head  tax  which  Wyoming  levied  on  all  sheep  brought 
into  that  state.'^  The  Oregon  Short  Lme  purchased  salt  on  behalf 
of  the  sheep  owners,  carried  it  to  Idaho,  and  only  collected  back 
the  purchase  price  at  the  time  the  salt  was  delivered.^  In  the 
same  way  there  was  competition  in  respect  to  cattle  and  horses 
which  wintered  in  southern  Idaho  and  northern  Nevada  and 
moved  east  in  the  sprmg.^  In  return  for  the  wool,  cattle,  hides, 
etc.,  shipped  east,  there  were  brought  in  shipments  of  miscellane- 
ous merchandise,  dry  goods,  macliinery,  and  the  like.  When  the 
Union  Pacific  handled  the  business  it  moved  from  New  York  to 
Norfolk  or  Newport  News,  thence  by  rail  to  Omaha  and  over  the 
Union  Pacific  lines  to  destination.  When  the  Southern  Pacific 
took  it,  the  freight  went  by  Southern  Pacific  steamers  to  New 
Orleans  or  Galveston,  and  thence  over  railroads  controlled  by 
the  company  to  Fort  Worth,  Texas,  where  it  was  given  to  con- 
nectmg  lines  for  delivery  at  destination.    The  rate  was  the  same 

1  Pp.  1109-1110  Fish.  3  p.  2391  Babcock. 

2  P.  2189  Stubbs.  *  P.  2491  Love. 

5  P.  2061  McBride. 


b 


HAKRIMAN  SYSTEM  DISSOLUTION  581 

either  way,   but    the    rivahy  between   soHcitmg   agencies  was 
intense.^ 

4.  Competition  as  to  traffic  between  Portland  and  Utah  and 
Colorado  common  points,  mcluding  certam  points  in  Nevada. 
Portland  enjoys  a  fairly  dii-ect  route  over  the  Oregon  Railroad 
and  Navigation  Company's  tracks  to  Huntington,  and  from  there 
over  the  Oregon  Short  Line  to  Granger,  a  few  miles  east  of 
Ogden.  The  Southern  Pacific  runs  south  from  Portland  to 
Roseville,  near  Sacramento,  and  thence  east  tlirough  California, 
Nevada,  and  Utah  to  Ogden.  The  distance  over  the  one  route  is 
945.3  miles  and  over  the  other  1487.3.  The  Roseville  route  has 
nearly  twice  the  rise  and  fall  of  the  Huntington  road,  wliile  the 
curvature  also  is  greater.  A  calculation  by  Mr.  Kruttschnitt 
estimated  that  the  direct-line  haul  was  equivalent  to  3498  miles 
of  straight  level  track,  but  that  the  haul  via  Roseville  was  equiva- 
lent to  6164  such  miles.2  The  evidence  nevertheless  showed  that 
some  busmess,  especially  lumber,  had  moved  the  long  way  around 
before  1901.  Traffic  also  had  moved  via  the  Oregon  Short  Line 
and  Central  Pacific  to  points  as  far  west  of  Ogden  as  Wells, 
Nevada.  How  much  all  this  amounted  to  was  not  clearly  shown 
—  at  best  it  was  probably  not  a  great  deal.  After  the  consolida- 
tion of  the  Union  Pacific  and  Southern  Pacific  in  1902  the  Shasta 
Route  took  out  its  through  rates  with  the  Oregon  Railroad  and 
Navigation  Company,  and  withdrew  from  the  competition. 

5.  Competition  as  to  traffic  between  San  Francisco  and  Port- 
land. Some  of  the  business  between  these  towns  used  the  same 
Southern  Pacific  rails  through  Oregon  and  California  that  were 
traversed  by  business  going  to  Utah  and  Nevada.  About  two- 
thirds  of  it,  however,  came  by  water.^  Mr.  Stubbs,  traffic  director 
of  the  Harriman  Imes,  testified  as  follows : 

The  steamship  service  between  San  Francisco  and  rorthind  is  licttci- 
than  the  rail  service,  with  this  single  exception  —  that  the  rail  service  is 
daily  while  the  steamshii)  service  is  prol)ably  only  once  in  five  days.  The 
points  of  delivery  and  taking  at  San  Francisco  and  at  Portlan<l  favor  the 
steamship  line.     In  the  early  opening  of  the  Shasta  Route,  we  had  some 

1  Pp.  2358-2371  McCarthy.  ^  I".  4141  Kruttschnitt. 

3  I'p.  3953-3954  Stubbs. 


582  RAILWAY  PROBLEMS 

anihition  to  load  our  trains  north-bound,  and  made  some  attempts  to  get 
the  business,  but  found  that  we  absolutely  could  not  take  the  business  as 
against  the  steamship  lines,  but  besides  this,  is  the  fact  that  there  were 
outside  competitors  with  the  Oregon  Railroad  and  Navigation ;  other  steam- 
ship lines,  and  steam  schooners,  that  nuide  the  rates  not  only  unremunera- 
tive,  but  they  were  unstable ;  so,  after  several  attempts  to  join  in  that 
business,  we  quit.^ 

The  evidence  showed  clearly  that  for  perhaps  one  and  a  half 
3'ears  after  1894,  the  railroad  and  steamship  Imes  competed 
actively  for  the  local  coast-wise  business,  both  freight  and  pas- 
senger. Rates  fell  to  $1.00  a  ton  by  water  and  $1.50  a  ton  by 
rail  for  the  653  miles  between  San  Francisco  and  Portland.^ 
Passenger  fares  were  $2.50  and  $5.00  on  the  boat,^  and  85.00 
and  $10.00  by  rail.  The  boat  rate  included  meals  and  berth,  for 
which  the  regular  charge  was  $6.00,  so  that  it  was  actually 
cheaper  to  pay  fare  than  to  ride  on  a  pass.  After  the  war  was 
over  a  differential  was  put  in  of  6  cents  a  100  pounds  L.C.L. 
and  3  cents  a  100  pounds  C.L.  between  the  steamers  and  the  rail 
lines  ^  —  all  this  before  1901.  Competition  in  service  continued,^ 
and  large  sums  are  still  spent  in  advertismg.*^ 

6.  Competition  for  traffic  between  San  Francisco  and  points 
in  ^Montana,  Idaho,  etc.  Wine,  dried  fruit,  sugar,  beans,  and 
other  California  products  distributed  from  San  Francisco  could 
pass  north  to  Portland  and  Seattle  via  the  Shasta  Route  or  by 
boat,  and  could  go  from  there  east  over  the  Oregon  Railroad  and 
Navigation  and  Oregon  Short  Line,  over  the  Great  Northern, 
or  over  the  Northern  Pacific.  Or  it  could  go  east  from  San  Fran- 
cisco by  the  Central  Pat-ilic  to  Ogden,  and  thence  north  over  the 
Oregon  Short  Line  into  Montana  and  Idaho.  The  business  was 
not  large,  but  it  was  competed  for  actively. 

7.  Competition  as  to  traffic  between  various  ports  in  the 
Orient  and  points  east  of  the  Missouri  river  in  the  United 
States.  The  Southern  Pacific  Company  bought  a  majority  of  the 
stock  of  the  Pacific  ]\Iail  in  the  fall  of  1902,'^  and  used  the  ships 
of  that  company  for  traffic  from  San  Francisco  to  Yokohama, 

1  P.  3935  Stubbs.  *  P.  2666  Ward.  6  p.  398O  Stubbs. 

2  P.  2901  Connor.  5  Pp.  2757-2758  Hurlburt.  '  P.  1666  Schwerin. 

3  P.  2632  O'Reilly. 


HARRIMAN   SYSTEM  DISSOLUTION  583 

Kobe,  Nagasaki,  Shanghai,  Hong  Kong,  and  sometimes  Amoy.i 
The  greater  part  of  the  busmess  moved  via  the  Union  and  Cen- 
tral Pacific ;  some  of  it  went  west  over  the  Sunset  Route  —  m 
all,  the  rail  lines  west  of  the  Missouri  earned  863,382.86  on 
Oriental  traffic  moving  through  San  Francisco  in  October,  1906.2 
On  the  other  hand,  the  Oregon  Railroad  and  Navigation  Com- 
pany owned  all  the  stock  of  the  Portland  and  Asiatic  Company, 
running  between  Portland  and  substantially  the  same  ports  of 
call  that  the  Pacific  Mail  reached  m  Chma  and  Japan.  This 
company  was  the  successor  of  tliree  lines  which  m  turn  had 
failed  to  make  the  business  through  Portland  pay,^  and  seems 
to  have  been  established  to  assist  the  Oregon  Railroad  and  Navi- 
gation in  competition  for  the  export  business  in  grain  and  flour.^ 
Ninety  per  cent  of  the  traffic  was  westbound.^  Of  course  the 
steamship  company  was  eager  for  traffic,  and  competed  m  con- 
nection with  the  Oregon  Railroad  and  Navigation,  Oregon  Short 
Line,  and  Union  Pacific  with  the  route  formed  by  the  Central 
Pacific  and  the  Union  Pacific,  at  least  prior  to  1901. 

The  voluminous  evidence  thus  summarized  showed  that  active 
competition  had  existed  of  almost  every  conceivable  kind.  There 
had  been  competition  of  parallel  routes  between  the  same  termini, 
of  parallel  or  roundabout  routes  between  different  termini,  of 
roundabout  routes  entirely  controlled  by  the  competing  lines,  of 
routes  in  which  the  Union  and  Southern  Pacific  were  links  only 
in  chains  of  connecting  and  independent  roads,  and  finally  there 
had  been  competition  in  cases  where  one  competitor  had  to  rely 
upon  the  other  for  a  greater  or  less  proportion  of  the  haul. 

There  were  certain  considerations,  nevertheless,  which  weak- 
ened the  Government's  case.  Although  the  carriers  liad  coinpeU'd, 
yet  counsel  were  aljle  to  show  only  in  sporadic  instances  tliat 
rates  had  been  cut.  The  most  important  through  business  wliicli 
the  Union  Pacific  had  possessed  had  been  the  transcontinental 
traffic  to  and  from  the  Pacific  coast,  and  the  connection  with 
which   it   had    interchanged   most    business   Avas   the    Southern 

1  P.  ](i57  Scliwerin.  "  1*.  4850  Campbell. 

2  P.  1872  Stubbs,  Exhibit  119.  *  P.  4851,  Ibid. 

5  Pp,  4851-4852,  Ibid. 


584  KAILWAV    PKOIU.EMS 

Pacific.  Now  the  Rio  Grande  Western  reached  as  far  west  as 
Ogdcn,  and  it  was  at  all  times  possible  for  the  Southern  Pacific 
to  divert  trafhc  this  way.  In  consequence  the  Union  Pacific  had 
not  dared  to  push  competition  very  far.  'Flic  Oregon  Short  Lhie 
and  the  Oregon  Railroad  and  Navigation  Company  had  remained 
practically  unused  for  transconthicntal  business.  Mr.  Munroe, 
freight  traffic  manager  of  the  Union  Pacific,  connected  with 
the  traffic  department  of  that  company  since  1882,  testified  that 
the  use  of  it  ^^'ould  have  been  suicidal.  ]\Ir.  Stubbs  declared  that 
in  all  his  experience  he  had  never  known  any  business  to  be 
worked  into  or  from  California  via  the  Portland  gateway.^  Even 
had  the  route  been  resorted  to,  movement  by  it  would  have  been 
roundabout  and  difficult,  and  freight  would  have  been  neces- 
sarily distributed  by  the  Southern  Pacific  from  San  Francisco. 
Restricted,  therefore,  to  interchange  with  the  Central  Pacific  at 
Ogden,  the  Union  Pacific  was  unable  to  quote  any  through  rates 
except  with  the  consent  of  the  very  company  which  it  was  its 
interest  to  fight.  Putting  to  one  side  the  transcontinental  busi- 
ness, the  competitive  traffic  remaining  was  not  large.  Counsel 
for  the  carriers  characterized  it  as  incidental  and  insignificant, 
while  the  Government  did  not  allege  that  the  earnings  on  it 
exceeded  three  or  four  million  dollars. 

A  somewhat  different  situation  appears  when  we  pass  from 
the  relations  between  the  Southern  Pacific  and  the  Union  Pacific 
to  the  evidence  touching  the  other  railroads  named  in  the  com- 
plaint. It  was  undisputed  that  the  Santa  Fe,  Great  Northern, 
and  Northern  Pacific  had  competed  directly  with  the  Central, 
Union,  and  Southern  Pacific.  But  this  was  not  the  whole  story. 
In  the  Salt  Lake  case  there  had  been  rivalry  in  construction 
rather  than  m  operation.  Mr.  Clark  had  desired  to  build  a  rail- 
road ;  the  Union  Pacific  had  tlireatened  to  parallel  it.  There 
was  no  rate-cutting,  for  there  were  no  rates ;  but  the  pressure 
of  imminent  financial  loss  had  been  as  strong  as  though  a  rate 
war  had  been  well  begun.  Mutatis  mutandis,  the  same  was 
true  of  a  part  of  the  dealings  between  ]\Ir.  Harriman  and  the 
Santa  Fe.    The  exchange  of  a  right  to  buy  a  half  interest  in  the 

1  r.  3900  stubbs. 


HAIIEIMAN   SYSTEM  DISSOLUTION  585 

Northwestern  Pacific  for  the  privilege  of  buying  a  road  m  New 
Mexico  had  put  an  end  to  projects  of  buildmg  which  would  have 
involved  considerable  extension  and  great  loss  in  profits.  The 
position  of  the  two  parties  to  the  suit  in  respect  to  these  opera- 
tions was  confused.  The  Government  was  disposed  to  term 
them  attempts  at  monopoly  and  to  distmgnish  them  on  this 
ground  from  competition  in  rates  or  service.  Counsel  for  the 
carriers  referred  to  them  as  independent  bargains  which  benefited 
the  parties  that  made  them  and  did  not  injure  the  public.  It  is 
difficult  nevertheless  to  see  why  the  negotiations  in  both  the 
Santa  Fe  and  the  San  Pedro  cases  were  not  forms  of  competi- 
tion, bearing  the  same  relation  to  rate  conflicts  that  the  strategy 
of  a  military  campaign  bears  to  the  tactics  of  a  battle.  Nor  is 
this  disproved  by  the  fact  that  the  logical  result  of  the  conflict 
was  consolidation  ;  for  this  is  true  of  any  sort  of  competition 
whatsoever. 

The  second  step  in  the  GoA'ernment's  proof  was  the  establish- 
ment of  the  fact  that  the  consolidations  which  it  charged  had 
lessened  competition.  iNIr.  Wickersham  had  no  difiiculty  in  prov- 
ing that  the  Union  Pacific  and  Southern  Pacific  had  consolidated 
the  greater  part  of  their  soliciting  agencies.  The  same  officials 
were  shown  to  be  in  general  charge  of  traffic  and  operation  on 
both  roads.  Business  which  formerly  had  been  sought  by  the 
Sunset  Route  and  the  Karriman  liiies  in  competition  was  now 
routed  so  as  to  produce  the  most  revenue  for  the  system  as  a 
whole.  So  far  as  the  San  Pedro,  Los  Angeles,  and  Salt  Lake 
Railroad  was  concerned,  a  traffic  agreement  had  been  entered 
into  in  1902  which  was  a  curiosity  in  railroad  literature.  The 
company  had  agreed  to  take  no  corporate  action  without  the 
approval  of  ]Mr.  Harriman.  It  was  not  to  extend  its  lines  north 
of  the  parallel  of  Salt  Lake  City ;  traffic  was  to  be  interchanged 
on  a  preferential  basis  with  the  Oregon  Short  Line  and  Lniou 
Pacific;  the  Salt  Lake  Company  was  to  ad()i)t  Southern  Pacilic 
rates  for  its  local  traffic,  and  was  to  allow  the  Union  Pacific  and 
the  Short  Line  to  make  through  rates  in  both  directions  to  and 
from  pomts  on  its  road.^  In  short,  the  Salt  Lake  road  bound 
1  Pleiuliiigs,  Exhibit  A,  pp.  24-27. 


580  I:AII.^^•.\^■   im:()1'.li:ms 

itself  luuid  and  foot.  As  for  the  Norlhcin  I'acilic,  the  Northern 
Sei'urilies  (.'oinpaiiy  had  Itrcii  dissolved  in  1905  and  the  old 
status  of  eompelition  restored;  but  the  Santa  Fe  Avas  operathig 
its  liiu's  in  Northern  California  alternately  with  the  Southern 
Paeitie,  and  competitive  construction  hi  the  Southwest  had 
C4?ased.  Besides  this,  an  agreement  had  been  entered  into  be- 
tween the  Southern  Pacific  and  the  Santa  Fe  dividing  the 
citrus  fruit  trallic  from  Southern  California,  and  another  ac- 
cording to  which  cargoes  from  the  Orient  enteruig  the  port  of 
San  Francisco  on  steamships  of  the  Pacific  Mail  were  appor- 
tioned roughly  in  the  proportion  that  the  two  railroads  furnished 
outbound  freight.  Possibly  because  of  this  last-named  arrange- 
ment, the  Santa  Fe  had  ceased  to  operate  its  line  of  steamships 
from  San  Diego. 

The  reply  of  the  carriers  on  these  points  was  technical.  They 
urged,  in  the  first  place,  quoting  from  Whitwell  v.  Continental 
Tobacco  Compani/,^  that  "  an  attempt  to  monopolize  a  i)art  of 
mterstate  commerce  which  promotes  or  but  indu-ectly  restricts 
competition  therein,  while  its  main  purpose  and  chief  effect  are 
to  increase  the  trade  and  foster  the  business  of  those  who  make 
it,  was  not  intended  to  be  made,  and  was  not  made,  illegal  by 
the  second  section."  .  .  .  The  validity  of  this  defense  depended, 
of  course,  upon  the  acceptance  of  the  assertion  that  only  in- 
cidental restriction  of  competition  had  occurred,^  and  on  proof 
that  the  merger  of  the  Pacific  railroads  had,  in  fact,  increased 
trade.  Counsel  put  Mr.  Kt-uttschnitt,  chief  operating  official  of 
the  Harriman  lines,  on  the  stand,  and  drew  from  him  a  detailed 
and  impressive  list  of  the  betterments  and  additions  made  since 
1901,  includmg  the  general  statement  that  the  Union  and 
Southern  Pacific  together  had  spent  $374,124,697.40  for  these 
purposes  in  the  eight  years  ending  June  30,  1909.  It  was  not 
a  necessary  conclusion  that  these  expenditures  had  improved 
service  or  lowered  rates ;  but  the  railroad  officials  testified  posi- 
tively that  they  had  had  such  an  effect,  and  the  contrary  was 
not  satisfactorily  established. 

1  12.5  Fed.  Rep.  4.58. 

2  Pp.  17.5  ff.,  Brief. 


HARRIMAX   SYSTEM   DISSOLUTION  587 

In  the  second  place,  the  railroads  maintained  that,  as  a  matter 
of  la\y,  ownership  by  one  railroad  of  another's  stock  did  not  con- 
stitute control  unless  a  clear  majority  were  held.  Control,  said 
counsel,  is  a  matter  of  power.  A  minority  may  direct  the  opera- 
tion pf  a  railroad  because  the  majority  has  confidence  in  it ;  but 
this  is  lawful.  The  Southern  Pacific  stockholders  had  confidence 
in  ]\Ir.  Harriman  and  his  associates,  but  they  could  have  super- 
seded them  at  any  time.  The  argument  deserved  and  was  given 
little  weight.  Unless  courts  are  to  shut  their  eyes  to  the  facts 
in  their  interpretation  of  the  law,  they  must  recognize  tliat  under 
any  ordmary  circumstances  less  than  a  majority  of  the  stock  of 
a  company  will  enal)le  the  holder  to  determine  its  policy.  The 
indifference  of  a  certain  proportion  of  stockholders,  the  fact  that 
the  officers  of  the  company  alone  liave  access  to  the  stock  list, 
the  regularity  with  which  a  substantial  number  of  proxies  may 
be  had  for  the  asking,  all  work  to  the  same  result.  This  was,  in 
fact,  admitted  by  the  defendants'  own  witnesses. 

This  left  as  a  final  step  in  the  argument  the  charge  tliat  the 
Union  Pacific  had  employed  an  illegal  method  in  suj)pressing 
competition.  The  situation  was  not  free  from  difficulty.  The 
carriers  maintained  that  the  essential  transaction  complainiMl  of 
had  been  a  purchase  of  stock.  This,  they  contended,  was  a 
matter  subject  only  to  State  legislation.  The  acquisition  or  dis- 
position of  property  is  not  commercial  intercourse. 

If  any  citizen  should  stc])  into  a  })roker's  office  on  Broadway,  New  York, 
buy  some  stock  in  tlie  Pennsylvania  Railroad,  ])ay  for  it,  put  the  certiK- 
cates  in  his  jiocket,  and  walk  out,  would  he,  or  the  broker,  or  the  broker's 
principal,  be  engaged  in  commercial  intercourse  between  nations  and  parts 
of  nations  ?  .  .  .  AV'ould  a  State  corporation  buying  those  certificates  be 
in  any  different  situation  from  an  individual  purchaser,  if  the  Stati;  of  its 
domicile  had  endowed  it  with  corporate  power  to  buy  stock  ?^ 

But  even  though  purchases  of  stock  were  subject  to  Federal  law 
they  would  violate  no  provisions  of  the  Sherman  Act.  A  piucbase 
or  sale  is  not  a  contract  in  restraint  of  ti'adc,  —  for  a  (■(tntracl  is 
executory,  implying  something  yet  to  l)e  done  ;  while  a  sak;  is 

1  Brief,  Dmuic,  pp.  210-220. 


588  EAIJ.WAY    I'Kor.LEMS 

executed,  completed  wlien  made  and  because  it  is  made.  Nor 
is  a  contract  in  restraint  of  trade  necessarily  unlawful.  It  must 
be  undue,  that  is,  not  entered  into  with  the  legitimate  purpose 
of  reasonably  forwarding  personal  interest  and  developing  trade. 
The  same  may  be  said  of  an  attempt  to  monopolize.  Every  act 
of  competition  tends  to  drive  competitors  out  of  business,  but 
competition  is  legal,  in  the  absence  of  fraud  or  duress.  It  follows 
that  an  individual  may  buy  out  a  competitor,  and  then  another 
com[)etitor,  and  so  on,  and  a  corporation  may  do  the  same  thing. 
"It  is  evident,"  said  Mi-.  Dunne's  brief,  —  ^'^ fraudulent^  intimi- 
datinf/,  coercive,  and  other  like  W7-ont/fuI  and  unlaivfid  methods 
apart  —  that  here  we  touch  a  fundamental  principle  of  the  free- 
dom to  buy  and  sell,  of  the  legal  right  of  the  individual  in  re- 
spect to  his  own  property."  ^ 

Tlie  case,  as  thus  made  up,  was  docketed  on  the  Supreme  Court 
calendar  on  October  9,  1911,  and  on  the  same  day  a  transca-ipt 
of  the  record  was  filed.  On  the  following  day,  a  motion  to  ad- 
vance was  submitted  to  the  court ;  the  motion  was  granted  on 
October  23,  and  the  case  was  assigned  for  hearing.  Argu- 
ments were  heard  on  April  19,  22,  and  23,  and  the  decision 
was  handed  down  on  December  2,  a  year  and  three  weeks 
after  proceedings  had  been  begun  before  the  final  court  of 
appeal.2 

The  opinion  of  the  Supreme  Court  was  remarkable  for  its 
brevity,  for  the  sweeping  terms  m  which  the  law  was  laid  down, 
and  none  the  less  for  the  exceptions  in  practice  which  it  coun- 
tenanced. As  was  to  be  expected,  the  main  emphasis  was  laid 
u})on  the  facts.  Was  there  or  was  there  not  such  competition 
between  tlie  parts  of  the  Southern  Pacific' system  that  combina- 
tion between  them  would  tend  to  monopoly  and  thus  be  in  vio- 
lation of  the  law?  "To  compete,"  said  the  Court,  "is  to  strive, 
for  something  which  another  is  actively  seeking  and  wislies  to 
gain."  Did  the  Southern  Pacific  before  1901  strive  for  anything 
which  the  Union  Pacific  was  actively  seeking  ?  To  state  the 
case  in  these  terms  was  to  compel  the  answer. 

1  Brief,  p.  285. 

2  No.  446.    October  Term,  1912.    U.  S.y.  The  U.  P.  R.  R.  Co.  et.  al. 


HARRIMAN   SYSTEM  DISSOLUTION  589 

The  Southern  Pacific,  through  its  agents,  advertisements  and  literature 
had  undertaken  to  obtain  transportation  for  its  "  Sunset "  or  southern 
route  across  the  continent  while  the  Union  Pacific  had  endeavored  in  the 
same  territory  to  have  freight  shipped  by  way  of  its  own  and  connecting 
lines,  thus  securing  for  itself  about  1000  miles  of  the  haul  to  the  coast.  .  .  . 

Comjietition  between  two  such  systems  consists  not  only  in  making 
rates,  which,  so  far  as  the  shipper  was  concerned,  the  proof  shows  were 
by  agreement  fixed  at  the  same  figure  whichever  route  was  used  .  .  .  but 
includes  the  character  of  the  service  rendered,  the  accommodation  of  the 
shipper  in  handling  and  caring  for  freight,  and  the  prompt  recognition  and 
adjustment  of  the  shipper's  claims.  Advantages  in  these  respects  were  the 
subjects  of  representation  and  the  basis  of  solicitation  by  many  active,  op- 
jiosing  agencies.  The  maintenance  of  these  by  the  rival  companies  pro- 
moted tlieir  business  and  increased  their  revenues.  The  inducements  to 
maintain  these  points  of  advantage  —  low  rates,  superiority  of  service  and 
accommodation  —  did  not  remain  the  same  in  tlie  hands  of  a  single  domi- 
nating and  common  ownership  as  it  was  when  they  were  the  subject  of 
active  promotion  by  competing  owners  whose  success  depended  upon  tlieir 
accomplishment. 

The  Court  replied  to  the  suggestion  that  the  traffic  competed 
for  was  infinitesimal  with  the  remark  that  though  relatively  small 
it  amounted  in  the  aggregate  to  many  millions  of  dollars.  To 
the  argument  that  though  physically  able  the  Union  Pacific  had 
never  dared  to  compete  with  the  Southern  Pacific  because  of  its 
dependency  upon  the  latter  for  direct  connection  with  the  Pacific 
coast,  it  answered,  first,  that  it  would  have  been  detrimental  to 
the  Southern  Pacific  to  have  declined  an  arrangement  for  the 
carriage  of  freight  received  from  the  Union  Pacific,  and  second, 
that  the  terms  of  the  Pacific  Railroad  Acts  of  1862  and  1864 
forbade  any  discrimmation  in  favor  of  the  Denver  and  Kio 
Grande  at  Ogden. 

Granted  that  substantial  competition  had  existed  befon;  11*01 
the  conclusion  that  this  competition  had  been  restrained  by  the 
purchase  on  the  part  of  the  Union  Pacific  system  of  stock  of  the 
Southern  Pacific  Company,  and  that  this  restraint  had  been  in 
violation  of  law  followed  unfailingly. 

The  consolidation  of  two  great  competing  systems  of  railroads  engaged 
in  interstate  commerce  l)y  a  transfer  to  one  of  a  dominating  stock  interest 
in  the  other  created  a  combination  which  restrains  interstate  commerce 


590  KAIL^YAY  PROBLEMS 

withiu  tho  meaning  of  the  statute  because,  iu  destroying  or  greatly  abridg- 
ing the  free  operation  of  competition  theretofore  existing,  it  tends  to  iiigher 
rates.  It  directly  tends  to  less  activity  in  furnishing  the  public  with  prompt 
adjustment  of  the  demands  of  patrons  for  losses.  .  .  . 

The  contention  that  a  consohdation  by  stock  purchase  was  not 
subject  to  Federal  regulation  the  court  brushed  aside. 

Nor  do  we  think  it  can  make  any  difference  that  instead  of  resorting 
to  a  holding  company,  as  was  done  in  the  Northern  Securities  case,  the 
controlling  interest  in  the  stock  of  one  corjaoration  is  transferred  to  the 
other.  The  domination  and  control,  and  the  power  to  suppress  competition, 
are  acquired  in  the  one  case  no  less  than  in  the  other,  and  the  resulting 
mischief,  at  which  the  statute  was  aimed,  is  equally  effective  whichever 
form  is  adopted. 

On  the  other  hand  the  Court  dismissed  the  complamt  agamst 
the  Atchison,  Topeka,  and  Santa  Fe  arising  out  of  transactions 
in  Arizona  discussed  in  connection  with  the  Government's  case. 
It  also  refused  to  take  action  in  the  matter  of  the  San  Pedro, 
Los  Angeles,  and  Salt  Lake.  The  Circuit  Court  had  not  be- 
lieved that  the  Salt  Lake  road  was  naturally  competitive  with 
the  LTnion  or  Southern  Pacific,  and  had  been  able  to  find  in  the 
agreement  with  the  Union  Pacific  only  a  laudable  purpose  to 
adjust  differences  and  to  construct  a  line  of  railroad  between 
two  points  which  would  serve  then-  joint  interests  as  well  as 
those  of  the  public.  The  Santa  Fe  matter  liad  been  thrown  out 
on  technical  grounds.  In  neither  case  did  the  Supreme  Court 
see  fit  to  disturb  the  conclusion  of  the  court  below. 

The  only  point  of  general  interest  in  this  decision  is  the 
Court's  attitude  toward  the  facts.  The  questions  of  law  raised 
had  been  sufficiently  covered  in  the  Standard  Oil  and  Tobacco 
decisions,  and  received  merely  brief,  though  emphatic  re-assertion. 
It  should  be  well  understood  now  even  by  the  legal  profession 
that  the  ordinary  property  rights  of  the  individual  are  limited 
by  the  Sherman  Act,  and  cannot  be  pleaded  as  a  defense  against 
it.  As  the  law  stands,  the  only  way  of  bringing  about  a  material 
unification  of  interest  between  two  railroads  which  are  competing 
in  interstate  busmess  appears  to  be  the  purchase  by  a  natural  per- 
son of  control  of  each,  and  the  importance  of  this  is  limited  by 


HARRIMAN   SYSTEM  DISSOLUTION  591 

the  fact  that  individuals  have  but  restricted  means,  and  die  in 
the  end  in  spite  of  the  best  of  care. 

Several  interesting  observations,  however,  are  suggested  by 
the  facts.  This  case  is  the  first  in  which  a  thorough-going  attempt 
has  been  made  to  trace  the  competitive  relations  between  two 
great  adjoining  railroad  systems.  The  result  is  likely  to  surprise 
the  general  public  as  it  becomes  known.  Very  little  of  the  com- 
petition between  the  Union  and  the  Southern  Pacific  systems,  it 
appears,  was  the  direct  struggle  between  parallel  roads  so  familiar 
in  early  railroad  history.  The  record  abundantly  shows  that  the 
Southern  Pacific  dominated  its  connection  at  Ogden  by  its  ability 
to  divert  eastbound  traffic  at  that  point  to  the  Denver  and  Rio 
Grande.  The  Court's  statement  that  the  Pacific  Railroad  Acts 
obliged  the  Central  Pacific  to  afford  equal  advantages  and  facili- 
ties as  to  "  rates,  time  and  transportation  "  to  all  connections  at 
Ogden  may  be  accepted  as  an  authoritative  though  unexpected 
interpretation  of  the  law ;  but  it  is  too  much  to  believe  that  the 
mere  systematic  diversion  of  unrouted  tralSc  would  not  have  in- 
volved a  loss  to  the  Union  Pacific  that  no  traffic  manager  would 
have  suffered  except  under  extraordinary  circumstances.  On  the 
other  hand,  the  more  remote  differences  in  interest  appeared  in 
practically  every  corner  of  the  United  States.  It  was  shown  that 
business  from  any  point  east  of  Omaha  and  New  Orleans  could 
make  use  of  either  the  Union  Pacific  or  the  Southern  Pacific,  as 
the  shipper  desired,  for  stations  in  almost  every  state  west  of 
those  cities.  Nor  was  this  the  most  striking  fact  brought  out. 
Traffic  from  New  York  to  Colorado  moved  via  Southern  Pacific 
steamers  to  New  Orleans  or  Galveston,  thence  over  railroads  con- 
trolled by  the  Southern  Pacific  to  Fort  Worth,  and  from  1^'ort 
Worth  to  destination  it  went  over  lines  in  which  the  Huntington 
carriers  had  no  interest.  (Jalveston  is  located  very  nearly  on  the 
meridian  of  Kansas  C'ity,  and  only  that  portion  of  the  haul  from 
New  York  by  the  southern  route  which  lay  west  of  Galveston, 
lay  in  anyway  parallel  to  it.  Nevertheless,  every  singli^  fraction 
of  the  southern  route;  com[)eted,  in  the  sense  in  wliicli  tlic  Supreme 
Court  used  the  term,  with  every  part  of  every  otlicr  conceivable 
route  which  connected  the  two  terminal  i)oints.    Vov  example,  the 


5U'2  KAILWAV   PROBLEMS 

New  York,  Ontario,  and  Westorn  operated  between  New  York 
and  Buffalo.  It  delivered  business  to  the  Wabasb,  wliich  in  turn 
gave  it  to  the  Union  Pacilic,  or  Rock  Island,  or  Burlington,  at 
Kansas  City.  It  follows  that  the  New  York,  Ontario,  and  West- 
ern was  a  competitor  of  the  lines  between  Fort  Worth  and  Den- 
ver, although  distant  from  them  1 250  miles  as  the  crow  flies  and 
connected  by  no  lines  over  which  it  had  control.  In  the  same 
wa}^  the  Atchison,  Topeka,  and  Santa  Fe,  running  north  from 
Fort  Worth,  competed  with  the  Old  Dominion  Steamship  Com- 
pany, plying  between  New  York  and  Norfolk,  and  the  Chicago 
and  Northwestern  between  Chicago  and  Omaha  competed  with 
the  Louisville  and  Nashville  between  River  Junction  and  New 
Orleans.  Where  one  railroad  formed  part  of  two  routes,  it  could 
even  be  a  competitor  of  itself,  as  the  Pennsylvania  from  Pitts- 
burg to  Chicago  and  from  Pittsburg  to  St.  Louis. 

In  view  of  this  very  broad  conception  of  the  nature  of  compe- 
tition in  rates  and  service,  it  is  curious  that  the  Supreme  Court 
failed  to  recognize  the  existence  of  the  "  financial "  or  "  diplo- 
matic "  competition  which  has  been  continuously  in  existence 
between  the  western  groups  of  roads,  a  competition  no  whit  less 
important  than  that  upon  which  the  Court  laid  stress.  This  took 
such  forms  as  the  tlireat  of  new  construction,  the  readiness  to 
divert  traffic  in  one  section  to  secure  favors  in  another,  or  the 
purchase  of  huge  blocks  of  a  competitor's  securities  as  a  demon- 
stration of  financial  strength.  It  is  not  to  be  supposed,  of  course, 
that  this  sort  of  struggle  is  limited  to  western  lines.  Great  rail- 
roads are  like  great  nations,  in  that  open  warfare  is  the  crudest 
weapon  which  they  employ.  The  larger  the  company  the  more 
important  the  influence  which  it  can  exert  in  indirect  ways.  It 
takes  a  good  deal  of  credulity  to  believe  anything  other  than 
that  the  Clark  mterests  undertook  the  construction  of  an  inde- 
pendent railroad  between  Los  Angeles  and  Salt  Lake,  which 
the  Harriman  people  contrived  to  dominate  in  order  to  forestall 
competition  which  might  have  ensued.  The  story  of  the  rela- 
tions between  the  Santa  Fe  and  the  Southern  Pacific  likewise 
is  full  of  illustrations  of  the  larger  kind  of  competition.  Similar 
facts  appear  in  the  recent  New  Haven-Grand  Trunk  negotiations, 


HARllIMAN   SYSTEM  DISSOLUTION  593 

or  in  the  agreements  between  the  Hill  and  Harriman  lines  in 
the  Northwest.  Indeed,  the  most  serious  objection  to  big  busi- 
ness merely  because  it  is  big  is  to  be  found  in  tlie  growth  of  the 
financial  power  of  the  single  units.  Sooner  or  later  the  courts 
will  have  to  recognize  the  problem. 

Another  point  of  interest  is  suggested  by  the  fact  that  tliis 
merger  case  is  the  first  ui  which  dissolution  will  provide  evi- 
dence of  the  effect  upon  operating  efficiency  of  the  division  of  a 
great  business  into  two  or  more  parts.  The  information  was  not 
available  in  the  case  of  the  Standard  Oil  and  American  Tobacco 
companies  because  they  were  not  public  service  corporations. 
It  was  not  useful  in  the  Northern  Securities  case  because  the 
units  in  that  merger  were  not  closely  enough  combined.  But 
for  the  Harriman  lines  we  shall  have  detailed  sets  of  records, 
prepared  on  a  uniform  basis  and  open  to  all  under  the  Inter- 
state Commerce  Law,  and  relating  to  a  company  which  has 
made  a  more  systematic  attempt  to  secure  the  full  economies 
of  large-scale  production  than  any  other  in  the  United  States. 
Thus  at  tlie  present  time  purchases  for  the  whole  system  are 
made  l)y  the  Director  of  Purchases,  Mr.  Thorne.  Standards  in 
construction  and  operation  have  been  established  after  consid- 
eration and  discussion  by  the  officers  from  general  superin- 
tendent up.  The  best  brains  in  the  accountiug  departmeut  have 
worked  in  harmony  for  improvements  in  method.  J>y  means  of 
a  car  pool  the  Harriman  equipment  is  utilized  wherever  the 
local  demand  is  greatest.  A  carefully  planned  course  of  instruc- 
tion offers  to  promising  employees  the  best  general  railroad 
training  in  the  country,  while  every  eff^ort  is  made  by  corri'- 
spondence  instructi(m  to  encourage  thouglit  and  develo[)  interest 
among  subordinates.  If  the  greater  decjentralization  I'csuhing 
from  splitting  the  system  in  two  com[)ensates  foi-  the  loss  in 
efficiency  in  other  ways,  an  important  [)rece(lent  will  liave  bci'U 
created.  Some  at  least  among  the  members  of  the  organization 
itself  expect  this  to  be  the  result.  A  conti-nry  o[)iiiion  is  indi- 
cated by  a  decline  in  the  pric(!  of  Union  Pacific  connnon  stock, 
after  the  decision,  of  11)  i)oints  in  t(!n  days.  It  is,  of  course, 
to  be   remembered  that  many  of  the  achievements  of  the  old 


594  RAILAVAY  PROBLEMS 

administration  will  be  enjoyi'd  as  a  legacy  by  the  new;  so  that 
conclusions  cannot  safely  be  drawn  until  after  the  lapse  of 
several  years. 

In  conclusion,  a  word  may  be  said  about  the  nature  of  the 
decree.  The  Supreme  Court  had  no  decree  of  the  lower  court 
before  it,  since  the  (Tovernment  suit  had  been  dismissed  by  that 
tribunal.  It  confined  itself,  therefore,  to  general  instructions  to 
the  Court  below.    These  were  in  brief: 

The  decree  to  be  entered  in  the  District  Court  shall  provide  an  injunc- 
tion against  the  right  to  vote  the  stock  while  in  the  ownership  or  control 
of  the  Union  Pacific  Company,  or  any  corjjoration  owned  by  it  or  while 
held  by  any  corporation  or  person  for  the  Union  Pacific  Company,  and 
forbid  any  transfer  or  deposit  thereof  in  such  wise  as  to  continue  its  con- 
trol, and  shall  provide  an  injunction  against  the  payment  of  dividends 
upon  such  stock  while  thus  held,  except  to  a  receiver  to  be  appointed  by 
the  District  Court  to  collect  and  hold  such  dividends  until  disposed  of  by 
the  decree  of  the  Court. 

Plans  were  to  be  presented  to  the  District  Court  within  three 
months,  failing  which  the  said  Court  should  proceed  by  receiver- 
ship and  sale  if  necessary.  Nothing  in  the  Supreme  Court's  in- 
structions was  to  be  construed  as  preventing  the  Union  Pacific 
from  retainmg  the  Central  Pacific  connection  from  Ogden  to 
San  Francisco,  if  desired.  A  later  ruling  has  held  that  a  distri- 
bution or  sale  of  Southern  Pacific  shares  now  held  by  the  Oregon 
Short  Line  to  the  stockholders  of  the  Union  Pacific  will  not 
satisfy  the  law.  Arrangements  for  the  purchase  of  the  Central 
Pacific  stock  by  the  Union  Pacific  or  one  of  its  subsidiaries  can 
readily  be  made,  provided  iJiat  the  Central  Pacific  stock  collateral 
bonds,  secured  by  the  stock  of  the  same  company,  are  paid  off. 
With  the  Central  Pacific  would  go  the  lines  of  ferries  connect- 
ing Oakland  with  San  Francisco.  The  Southern  Pacific  stock 
itself  is  pledged  under  the  Oregon  Short  Line  refunding  4's  to 
the  extent  of  $108,000,000 ;  but  under  the  terms  of  the  mort- 
gage, the  company  is  entitled  to  withdraw  any  particular  collat- 
eral on  deposit  at  the  rate  at  which  bonds  were  originally  issued 
against  the  same,  provided  that  securities  of  railroads  or  car  com- 
panies be  substituted.    The  Union  Pacific  owned  $244,073,200 


HAKRIMAN  SYSTEM  DISSOLUTION  595 

of  unpledged  stock  and  bonds  of  companies  within  the  system 
at  the  date  of  its  last  annual  rej)ort,  so  the  requirements  of  the 
indenture  can  be  easily  complied  with.i 

Stuaet  Daggett 

1  The  later  history  of  the  dissolution  may  be  briefly  outlined.  A  first  plan 
to  distribute  the  Union  Pacific's  entire  holdinirs  of  1,266,500  shares  of  Southern 
Pacific's  common  stock  among  its  own  shareholders  gratis  was  vetoed  by  the 
Supreme  Court  on  the  very  proper  ground  that  it  would  leave  control  in  exactly 
the  same  hands  as  before,  except  that  such  control  would  be  exercised  through 
the  medium  of  private  persons,  —  dominant  stockholders  of  the  Union  Pacific. 
Farcical  proceedings  in  apparent  dissolution  like  those  of  the  Standard  Oil 
Company  were  thus  forestalled.  A  second  plan  likewise  came  to  grief  through 
refusal  of  the  California  Railroad  Commission  to  give  its  assent  to  essential 
details.  This  plan  proposed  :  first,  a  sale  of  its  Southern  Pacific  stock,  under 
privileged  conditions,  to  all  shareholders  both  of  the  Union  Pacific  and  South- 
ern Pacific  companies,  except,  of  course,  to  the  Union  Pacific  or  the  Oregon 
Short  Line  Company  ;  and  secondly,  with  funds  thus  acquired,  an  outright 
purchase  by  the  Union  Pacific  from  the  Southern  Pacific  of  the  Central  Pacific 
link.  This  would  give  the  Union  Pacific  its  long-desired  access  over  its  own 
rails  to  the  coast  —  this  having  been  the  motive  for  taking  over  the  Southern 
Pacific  in  first  instance.  But  the  California  Commission  insisted  upon  open  and 
actual  competition  at  all  points. 

A  third  plan  was  then  evolved,  quite  different  in  principle.  All  the  Southern 
Pacific  shares  were  to  be  distributed  pro  rata  among  the  Union  Pacific  stock- 
holders, as  by  the  first  plan,  but  such  disposition  was  to  be  coupled  with  dis- 
franchisement for  all  purposes  of  control,  of  all  holders  of  1000  shares  or  over. 
A  trustee  was  to  issue  certificates  of  interest  upon  deposit  of  all  Southern  Pacific 
shares  held  by  the  Union  Pacific,  which  were  to  carry  no  voting  rights  while 
so  held,  and  which  should  be  exchangeable  for  actual  Southern  Pacific  shares 
only  on  affidavit  that  the  applicant  for  exchange  held  less  than  1000  sliares. 
This  f)lan  would  exclude  368  other  private  shareholders  from  further  increase 
of  their  holdings,  and  would  thus  appear  to  have  been  of  doubtful  legality. 

The  final  plan  adopted  in  July  was  entirely  dilferent  in  many  ways.  It  aimed 
to  dissolve  another  similar  control  by  the  Pennsylvania  Ilailroad  of  a  competing 
line,  by  substituting  in  each  case  control  or  at  least  a  dominant  interest  in  merely 
a  connecting  line.  The  Pennsylvania  exchanged  212,737  preferred  shares  at 
§80  and  212,736  common  shares  at  par  of  the  Baltimore  and  Ohio  Kailroad 
with  the  Union  Pacific  system  for  its  382,924  shares  of  the  Southern  Pacific  at 
par.  This  left  the  Union  Pacific  with  a  balance  of  883,576  shares  of  Soutliern 
Pacific  stock,  which  balance  it  was  authorized  by  the  court  to  distribute  to  the 
extent  of  27  per  cent  of  their  then  holdings  among  the  other  general  share- 
holders of  its  own  company.  The  expedient  of  issuance  of  certificates  of  interest 
by  a  trustee  to  be  exchanged  for  actual  stock  upon  affidavit  that  purchase  wius 
made  in  good  faith  on  his  own  behalf  independently  of  the  Union  Pacific  interests, 
was  borrowed  from  the  preceding  plan.  The  price  of  such  privileged  subscrip- 
tion was  to  be  sufficiently  favorable  to  insure  the  success  of  the  distribution. 
This  plan,  it  will  be  observed,  differed  from  the  first  two  in  that  it  left  the 


506  EAILWAY  PROBLEMS 

Central  Pacific  link  to  the  coast  still  In  the  hands  of  the  Southern  Pacific.  But 
this  feature,  held  by  the  outgoing  administration  as  essential,  was  not  empha- 
sized by  the  new  Democratic  Attorney-General  ;  and  as  for  the  Union  Pacific, 
it  was  deemed  that  a  traffic  alliance  with  the  Central  Pacific  providing  for  a 
through  route  and  most-favored  treatment  as  to  facilities  for  interchange  — 
guaranteed  in  any  event  by  the  significant  clause  upon  the  subject  in  the  Hep- 
burn law  of  1906  —  would  in  some  ways  be  preferable  to  ownership.  It  would 
be  more  elastic  and  would,  moreover,  as  a  detail  of  interstate  commerce  be  free 
from  interference  by  the  railroad  connnissions  of  the  states  concerned.  Such 
a  traffic  agreement  would  also  insure  to  the  Union  Pacific  a  due  share  of  east- 
bound  business,  which  otherwise,  had  it  purchased  the  Central  Pacific,  the 
Southern  Pacific  might  choose  to  route  entirely  over  its  own  long  line.  Thus, 
at  this  writing,  the  dissolution  promised  by  1916,  —  the  ultimate  time  allowed 
by  the  judicial  decree,  —  to  be  brought  to  a  successfid  close.  —  Ed. 


XXIII 
.     REASONABLE  RATES  i 

^TATES  may  fix  local  rates  for  public  service,  but  decisions 
^^  of  the  United  States  Supreme  Court  have  swept  away  the 
power  of  states  to  make  their  rates  conclusive. 

This  result  has  been  reached  gradually  through  a  line  of  deci- 
sions under  the  Fourteenth  Amendment. 

In  the  earliest  cases  of  rate  regulation  under  the  amendment 
the  court  declined  to  review  the  reasonableness  of  rates  fixed 
by  states,  holding  this  to  be  purely  a  legislative  question. 
Later  the  court  decided  to  review  the  extent  of  rate  regulation, 
but  held  that  rates  which  permitted  some,  though  only  a  slight, 
return  on  the  property  devoted  to  a  public  service  were  legal. 
Finally  a  position  has  been  reached  where  rates  fixed  by  states 
are  held  invalid  unless  they  permit  as  large  profits  as  the 
court  thinks  the  public  service  ought  to  yield.  In  this  way 
the  power  to  determine  what  aie  reasonable  rates  for  public 
service  has  been  transferred  from  state  legislatures  to  the 
Supreme  Court. 

The  first  case  in  which  the  extent  of  state  regulation  of  rates 
for  public  service  was  brought  before  the  Supreme  Court  for  re- 
view, after  adoption  of  the  Fourteenth  Amendment,  was  Munn 
V.  Illinois,^  decided  in  1876.  This  case  involved  the  validity 
of  an  Illinois  statute  that  fixed  a  maximum  rate  for  storing 
grain  in  elevators  at  Chicago.  INIunn,  having  been  convicted 
and  fined  in  the  state  courts  for  violation  of  the  'statute,  ap- 
pealed to  the  United  States  courts  on  the  ground  that  enforce- 
ment of  the  rate  provided  by  the  statute  would  take  his  property 

1  From  the  Journal  of  Political  Economy,  December,  lOO.S,  pp.  79-07.  The 
same  subject  is  much  elaborated  in  Publications  of  the  American  Economic  Asso- 
ciation, 3d  series,  Vol.  VII,  1900,  pp.  24-82.  '^  94  U.  S.  113. 

597 


598  RAILWAY  PROBLEMS 

without  due  process  of  law  and  violate  the  Fourteenth  Amend- 
ment. In  the  course  of  an  opinion  upholding  the  validity  of 
the  statute,  Chief  Justice  Waite  said,  speaking  for  the  court: 

It  is  insisted,  however,  that  the  owner  of  property  is  entitled  to  a  rea- 
sonable compensation  for  its  use,  even  though  it  be  clothed  with  a  public 
interest,  and  that  what  is  reasonable  is  a  judicial  and  not  a  legislative 
question. 

As  has  already  been  shown,  the  practice  has  been  otherwise.  In  coun- 
tries where  the  common  law  prevails,  it  has  been  customary  from  time 
immemorial  for  the  legislature  to  declare  what  shall  be  reasonable  compen- 
sation under  such  circumstances,  or,  perhaps  more  properly  speaking,  to  fix 
a  maximum  beyond  which  any  charge  made  would  be  unreasonable.  .  .  . 
The  controlling  fact  is  the  power  to  regulate  at  all.  If  that  exists,  the 
right  to  establish  the  maximum  of  charge,  as  one  of  the  means  of  regula- 
tion, is  implied. 

From  these  statements  it  is  perfectly  clear  that  the  question 
as  to  the  right  of  those  engaged  in  a  public  calling  to  have  a 
judicial  review  of  rates  fixed  by  a  legislature  was  squarely  pre- 
sented to  the  court  in  this  case.  It  is  equally  clear  that  in  the 
opinion  of  the  court  no  such  right  existed. 

Of  the  nine  Supreme  Court  Justices,  two,  Field  and  Strong, 
dissented  from  the  decision  in  Munn  v.  Illinois.  The  dissent- 
ing opinion  was  prepared  by  Justice  Field  and  concurred  in  by 
Justice  Strong.  This  dissent  went  on  the  broad  ground  that 
the  storage  of  grain  is  not  a  public  business  or  one  for  which  a 
legislature  has  the  power  to  fix  rates.  Nowhere  in  the  dissent- 
ing opinion  is  it  contended  that  in  a  public  business  where  a 
legislature  has  the  right  to  fix  rates  the  amount  or  reasonable- 
ness of  these  rates  can  be  reviewed  by  the  court.  On  the  con- 
trary, Judge  Field  said  in  the  course  of  his  opinion  : 

If  it  be  admitted  that  the  legislature  has  any  control  over  the  compensa- 
tion, the  extent  of  that  compensation  becomes  a  mere  matter  of  legislative 
discretion.  .  .  .  The  several  instances  mentioned  by  counsel  in  the  argu- 
ment, and  by  the  court  in  its  opinion,  in  which  legislation  has  fixed  the 
compensation  which  parties  may  receive  for  the  use  of  their  property  and 
services,  do  not  militate  against  the  views  I  have  expressed  of  the  power 
of  the  state  over  the  property  of  the  citizen.  They  were  mostly  cases  of 
public  ferries,  bridges,  and  turnpikes,  of  wharfingers,  hackmen,  and  dray- 
men, and  of  interest  on  money.    In  all  these  cases,  except  that  of  interest 


WHAT  APvE  EEASONABLE  BATES?  599 

on  money,  which  I  shall  presently  notice,  there  was  some  special  privilege 
granted  by  the  state  or  municipality ;  and  no  one,  I  suppose,  has  ever  con- 
tended that  the  state  had  not  a  right  to  prescribe  the  conditions  upon 
which  such  privilege  should  be  enjoyed. 

At  the  October  term  of  the  Supreme  Court,  in  1876,  when 
the  opinion  in  Munn  v.  Illinois  was  delivered,  cases  involving 
the  validity  of  railway  rates  fixed  by  the  legislatures  of  Iowa, 
Minnesota,  and  Wisconsin  were  also  decided.  Several  of  these 
cases  involved  the  power  of  legislatures  to  fix  conclusively  the 
rates  for  pul)lic  service  under  the  Fourteenth  Amendment,  and 
in  each  case  the  court  affirmed  this  power. 

In  Chicago^  Burlington  ^  Quincy  Railway  Co.  v.  loioa}  maxi- 
mum rates  fixed  for  transportation  by  a  statute  of  that  state 
were  contested  on  the  ground,  among  others,  that  the  rates  fixed 
would  take  property  of  the  railway  without  due  process  of 
law.  Replying  to  this  contention  the  court  in  an  opinion 
upholding  the  statute  said  through  Chief  Justice  Waite : 

In  the  absence  of  any  legislative  regulation  upon  the  subject,  the  courts 
must  decide  for  it,  as  they  do  for  private  persons,  when  controversies  arise, 
what  is  reasonable.  But  when  the  legislature  steps  in  and  prescribes  a 
maximum  of  charge,  it  operates  upon  this  corporation  the  same  as  it  does 
upon  individuals  engaged  in  a  similar  business. 

In  other  words,  the  court  decided  that  due  process  of  law  was 
satisfied  when  rates  for  public  service  were  fixed  by  the  legislature. 

The  next  case,  Peik  v.  Chicago  ^  JVorth-Westei-n  Raihvay  Co.^ 
was  brought  to  restrain  the  enforcement  of  a  law  of  Wis- 
consin that  fixed  maximum  rates  for  passengers  and  freight. 
It  was  contended  on  the  part  of  the  railway  security  holders 
that  the  rates  named  in  the  statute  would  destroy  the  value  of 
their  securities,  that  the  railway  was  entitled  to  collect  reason- 
able compensation  for  its  services,  and  that  reasonable  compen- 
sation was  a  question  for  the  court  and  not  for  the  legislature. 
Chief  Justice  Waite  again  delivered  the  opinion  of  the  court,  in 
which  it  was  said,  upholding  the  statute : 

In  Munn  v.  Illinois,  supra,  p.  11^3,  and  Chicacfn,  Burlinr/lon  cV  Quinry  I'ail- 
road  Co.  v.  Iowa,  supra,  p.  155,  we  decided  that  the  state  may  limit  the 

1  94  U.  S.  155.  "  94  U.  S.  164. 


000  IIAILWAY   nior.LKMS 

aiiioimt  of  charges  by  railroad  coinpauies  for  fares  and  freights,  unless 
restrained  by  some  contract  in  the  cliarter,  even  tliough  their  income  may 
have  been  pledged  as  security  for  the  payment  of  obligations  incurred 
upon  the  faith  of  the  charter.  So  far  this  case  is  disposed  of  by  those 
decisions.  ...  As  to  the  claim  that  the  com-ts  must  decide  what  is  reason- 
able, and  not  the  legislature.  This  is  not  new  to  this  case.  It  has  been 
fully  considered  in  Mmin  v.  Illiiiui^.  Where  property  has  been  clothed 
with  a  public  interest,  the  legislature  nuiy  fix  a  limit  to  that  which  shall 
in  law  be  reasonable  for  its  use.  This  limit  binds  the  courts  as  well  as  the 
people.  If  it  has  been  improperly  fixed,  the  legislature,  not  the  courts, 
must  be  appealed  to  for  the  change. 

In  Chicago,  3£ihvaukee  ^  St.  Paul  Railroad  Co.  v.  Ackley  ^ 
the  court  said,  speaking  through  Chief  Justice  Waite : 

The  only  question  presented  by  this  record  is  whether  a  railroad  com- 
pany in  AYisconsin  can  recover  for  the  transportation  of  property  more  than 
the  maximum  fixed  by  the  act  of  March  11,  1874,  by  showing  that  the 
amount  charged  was  no  more  than  a  reasonable  compensation  for  the  serv- 
ices rendered.  .  .  .  But  for  goods  actually  carried,  the  limit  of  the  recov- 
ery is  that  prescribed  by  the  statute. 

Two  eases  ^  involving  railway  rates  under  a  statute  of  Minne- 
sota followed  those  just  considered,  and  the  court  in  brief  opin- 
ions stated  that  they  were  covered  by  the  rulings  already  made. 

In  Stone  v.  Wisconsin,^  which  was  decided  in  favor  of  a  state 
statute  fixing  rates,  the  only  question  not  covered  by  Chicago, 
etc..  Railway  Co.  v.  Ackley,  according  to  the  court,  related  to 
the  construction  of  a  certain  charter. 

Justices  Field  and  Strong  dissented  in  each  of  the  above  rail- 
way cases,  but  gave  no  opinion  until  Stone  v.  Wisconsin  was 
reached,  when  Justice  Field  prepared  an  opinion  in  which  Jus- 
tice Strong  concurred.  In  this  opinion  the  dissent  to  this  entire 
group  of  railway  cases  was  put  on  the  ground  that  the  railway 
charters  were  contracts  with  the  legislatures,  which  should  pro- 
tect the  companies  from  state  regulation  of  rates. 

Besides  Chief  Justice  Waite,  the  celebrated  group  of  cases 
headed  by  Munn  v.  Illinois  was  supported  by  Justices  Clifford, 
Hunt,  Bradley,  Swayne,  Davis,  and  Miller.  The  assertion  by 
these  judges  of  the  power  of  states  to  fix  conclusive  rates  for 

1  94  U.  S.  179.  2  94  u.  S.  180.  ^  94  u.  s.  181. 


WHAT  ARE  REASONABLE  RATES?  601 

public  service  seems  to  have  been  as  emphatic  as  any  believer 
in  local  self-government  could  desire. 

The  doctrine  of  the  Granger  Cases,  that  a  state  may  fix  con- 
clusive rates  for  local  public  service  was  reaffirmed  in  the  case 
of  Buggies  v.  Illinois,^  where  the  validity  of  a  law  of  that  state 
providing  a  maximum  fare  per  mile  on  railways  was  called  in 
question.  In  the  course  of  its  opinion  sustaining  the  law  the 
Supreme  Court  said : 

This  implies  that,  in  the  absence  of  direct  legislation  on  the  subject, 
the  power  of  the  directors  over  the  rates  is  subject  only  to  the  common-law 
limitation  of  reasonableness,  for  in  the  absence  of  a  statute,  or  other 
appropriate  indication  of  the  legislative  will,  the  common  law  forms  part 
of  the  laws  of  the  state  to  which  the  corj^orate  by-laws  must  conform.  But 
since,  in  the  absence  of  some  restraining  contract,  the  state  may  establish 
a  maximum  of  rates  to  be  charged  by  railroad  companies  for  the  transpor- 
tation of  persons  and  property,  it  follows  that,  when  a  maximum  is  so 
established,  that  fixed  by  the  directors  must  conform  to  its  requirements, 
otherwise  the  by-laws  will  be  repugnant  to  the  laws. 

Seven  judges  supported  the  majority  opinion  in  this  case,  and 
two  judges,  Field  and  Harlan,  delivered  separate  concurring 
opinions.  Judge  Harlan  held  that  the  charter  of  the  railway  in 
question  was  a  contract  that  gave  it  the  right  to  collect  reason- 
able rates,  but  that  the  rates  fixed  by  statute  were  not  shown 
to  be  unreasonable.  Judge  Field  held  that  the  statutory  rates 
had  not  been  shown  unreasonable,  but  did  not  state  why  he 
thought  that  they  were  bound  to  be  reasonable. 

By  1885  a  fundamental  change  had  taken  place  in  the  posi- 
tion of  a  portion  of  the  court  on  the  question  of  state  power 
over  rates  for  public  service.  This  change  was  brought  out 
by  the  case  of  iStone  v.  Farmers''  Loan  ^  Trust  Co.,^  where  an 
effort  was  made  to  enjoin  the  enforcement  of  i-ates  under  a 
Mississippi  statute.  The  court  through  Chief  Justice  Waite 
affirmed  the  power  of  the  state  to  lix  rates  and  upheld  th(^ 
statute,  but  added : 

From  what  has  been  said,  it  is  not  to  be  inferred  that  this  power  ofliniita- 
tion  or  regulation  is  itself  without  limit.    This  power  to  regulate  is  not  a 

1108U.  S.  520.  2  11(5  II.  S.  .307. 


602  KA1L\VA\     I'lior.I.EMS 

power  to  destroy,  and  limitation  is  not  the  equivalent  of  confiscation.  Under 
pretense  of  regulating  fares  and  freights,  the  state  cannot  require  a  railroad 
corporation  to  carry  persons  or  property  without  reward  ;  neither  can  it  do 
that  which  in  law  amounts  to  a  taking  of  private  property  for  public  use 
without  just  compensation,  or  without  due  process  of  la\v.  What  would  have 
this  effect  we  need  not  now  say,  because  no  tariif  has  yet  been  fixed  by  the 
commission,  and  the  statute  of  ^Mississippi  expressly  provides  "  that  in  all 
trials  of  cases  brought  for  a  violation  of  any  tariff  of  charges,  as  fixed  by 
the  commission,  it  may  be  shown  in  defense  that  such  tariff  so  fixed  is 
unjust." 

Thus  was  the  underlying  principle  of  the  Granger  Cases  as 
to  reasonable  rates  brought  in  question.  Unlimited  power  of 
regulation  like  that  affirmed  in  those  cases  may  certainly  be 
used  to  destroy  and  did  in  fact  destroy  much  of  the  value  of 
railway  securities  under  the  Granger  Acts.  It  was  said  of  the 
United  States  Bank  by  Chief  Justice  Marshall  in  M' Culloch  v. 
State  of  Maryland  :  ^ 

That  the  power  of  taxing  it  by  the  states  may  be  exercised  so  as  to  destroy 
it,  is  too  obvious  to  be  denied. 

The  tax  imposed  by  Congress  on  note  issues  of  state  banks 
after  the  close  of  the  Civil  War  in  the  exercise  of  its  power  to 
regulate  the  currency,  and  upheld  in  Veazie  Bank  v.  Fenno^ 
certainly  destroyed  these  issues  completely.  Of  course,  if  the 
power  to  regulate  is  itself  regulated  by  some  other  and  higher 
power,  the  former  may  be  held  within  any  desired  limits.  The 
above  quotation  from  the  opinion  in  Stone  v.  Farmers'  Loan 
^  Trust  Go?  must  mean,  therefore,  an  assertion  by  the  court  of 
its  power  to  review  rates  fixed  by  a  state.  Even  the  Granger 
Cases  never  decided  that  a  railway  must  continue  in  business 
against  its  will  under  rates  fixed  by  a  state ;  it  was  open  to  the 
railway  to  go  out  of  business.  Neither  did  the  Granger  Cases 
decide  that  the  property  used  in  a  public  service  might  be  taken 
without  due  process  of  law,  but  rather  that  state  regulation 
of  rates  for  such  service  was  due  process  of  law.  The  power 
asserted  by  the  court  in  the  case  under  consideration  must 
therefore  relate  to  the  review  of  the  reasonableness  or  justice 

1  4  Wheaton,  316.  2  g  Wall.  533.  3  1I6U.  S.  307. 


WHAT  ARE  REASONABLE   RATES?  603 

of  rates  fixed  by  a  state.    This  meaning  is  made  clear  by  the 
statement  that: 

What  would  have  this  effect  we  need  not  now  say,  because  no  tariff  has 
yet  been  fixed  by  the  commission.  .  .  . 

The  opinion  in  the  case  under  consideration  was  delivered  by 
Chief  Justice  Waite  who  spoke  in  the  Granger  Cases,  and  was 
also  supported  by  Justices  Bradley,  Miller,  Woods,  Matthews, 
and  Gray,  of  whom  Bradley  and  Miller  took  part  in  the  Granger 
Cases.  Justices  Harlan  and  Field  dissented,  and  Blatchford  did 
not  sit.  The  dissent  of  Harlan,  J.,  went  on  the  ground  that  the 
railway  charters  were  contracts  that  permitted  the  companies  to 
fix  their  own  rates  unless  they  were  shown  to  be  unreasonable. 

In  Bow  V.  Beidehnan^  a,  statute  of  Arkansas  that  fixed  a  maxi- 
mum fare  of  three  cents  per  mile  on  railroads  in  that  state  was 
upheld  by  a  unanimous  court.  It  was  shown  in  this  case  that 
the  rates  fixed  by  statute,  on  the  basis  of  the  existing  traffic, 
would  yield  a  net  yearly  income  of  less  than  1.5  per  cent  on  the 
original  cost  of  the  road  and  only  a  little  more  than  2  per  cent 
on  the  bonded  debt.  The  evidence  did  not  show,  however,  how 
much  the  then  owners  of  the  railway  had  paid  for  it.  Justice 
Gray  said  in  delivering  the  opinion  of  the  court: 

Without  any  proof  of  the  sum  invested  by  the  reorganized  corporation 
or  its  trustees,  the  coiu-t  has  no  means,  if  it  would  under  any  circumstances 
have  the  power,  of  determining  that  the  rate  of  three  cents  a  mile  fixed  by 
the  legislature  is  unreasonable. 

The  dictum  above  quoted  from  Stone  v.  Farmers'  Loan  <f  Trust 
Go.^  as  to  limitations  on  the  power  of  states  to  fix  conclusive 
rates,  was  repeated  with  approval  in  the  case  under  consideration. 

In  neither  of  these  two  cases  was  it  open  to  members  of  the 
court  who  did  not  assent  to  this  dictum,  but  who  did  agree  with 
the  decision,  to  dissent  from  the  opinion,  because  the  principle 
of  the  dictum  was  not  acted  on  in  either  decision.  The  later  of 
these  two  cases  was  decided  by  eight  judges,  Chief  Justice  Waite 
having  died  at  Washington,  March  23, 1888. 

1  125  U.  S.  680.  mo  U.  S.  307. 


(i04  RAILWAY  PROBLEMS 

In  Chicago,  3Iilwaukec  jf*  St.  Paul  Railroad  Co.  v.  Minnesota,^ 
the  dicta  put  forth  in  previous  cases  that  the  reasonableness  of 
rates  fixed  by  a  state  is  subject  to  review  by  the  courts,  was 
established  by  the  force  of  a  judicial  decision.  This  case  arose 
under  a  statute  of  Minnesota  which  authorized  a  commission  to 
fix  transportation  rates.  The  commission  reduced  the  rate  for 
carrying  milk  between  certain  points  from  3  cents  to  2.5  cents 
per  gallon,  and  the  Minnesota  courts  refused  to  admit  evidence 
offered  by  the  railway  that  the  latter  rate  was  unreasonable, 
holding  that  under  the  statute  the  findings  of  the  commission 
were  conclusive.  From  this  decision  the  railway  appealed  to 
the  Federal  court  on  the  ground  that  the  denial  of  a  judicial 
hearing  as  to  the  reasonableness  of  the  rates  would  deprive  it 
of  property  without  due  process  of  law.  Mr.  Justice  Blatchford 
delivered  the  opinion  of  the  court,  holding  the  INIinnesota  statute 
void  because  it  made  the  rates  fixed  by  the  commission  conclu- 
sive.   In  the  course  of  this  opinion  the  court  said : 

The  question  of  the  reasonableness  of  a  rate  of  charge  for  transportation 
by  a  railroad  company,  involving,  as  it  does,  the  element  of  reasonableness, 
both  as  regards  the  comjiany  and  as  regards  the  public,  is  eminently  a  ques- 
tion for  judicial  investigation,  requiring  due  process  of  law  for  its  determina- 
tion. If  the  company  is  deprived  of  the  power  of  charging  reasonable  rates 
for  the  use  of  its  property,  and  such  deprivation  takes  place  in  the  absence 
of  an  investigation  by  judicial  machinery,  it  is  deprived  of  the  lawful  use  of 
its  property,  and  thus,  in  substance  and  effect,  of  the  property  itself,  without 
due  process  of  law,  and  in  violation  of  the  Constitution  of  the  United  States  ; 
and  in  so  far  as  it  is  tlius  deprived,  wliile  other  persons  are  permitted  to 
receive  reasonable  profits  upon  their  invested  capital,  the  company  is  deprived 
of  the  equal  protection  of  the  laws. 

Dissent  from  some  of  the  judges  who  decided  the  Granger 
Cases  was  now  due.  This  dissent  could  not  properly  have  been 
delivered  in  the  earlier  cases  where  the  power  of  the  court  to 
review  rates  fixed  by  a  state  liad  been  asserted,  because  those 
assertions  were  mere  dicta  and  were  not  involved  in  the  decisions 
of  the  cases  where  they  occurred. 

In  the  course  of  a  long  dissenting  opinion,  concurred  in  by 
Justices  Gray  and  Lamar,  Justice  Bradley  said : 

1  134  U.  S.  418. 


WHAT  ARE  REASONABLE  RATES?  605 

I  cannot  agree  to  the  decision  of  the  court  in  this  case.  It  practically 
overrules  Mtmn  v.  Illinois,  91  U.  S.  113,  and  the  several  railroad  cases  that 
were  decided  at  the  same  time.  The  governing  principle  of  those  cases  was 
that  the  regulation  and  settlement  of  the  fares  of  railroads  and  other  public 
accommodations  is  a  legislative  prerogative  and  not  a  judicial  one.  This  is 
a  principle  which  I  regard  as  of  great  importance.  When  a  railroad  com- 
pany is  chartered,  it  is  for  the  purpose  of  performing  a  duty  which  belongs 
to  the  state  itself.  It  is  chartered  as  an  agent  of  the  state  for  furnishing 
public  accommodation.  The  state  might  build  its  railroads  if  it  saw  fit.  It 
is  its  duty  and  its  prerogative  to  provide  means  of  intercommunication 
between  one  part  of  its  territory  and  another.  And  this  duty  is  devolved 
upon  the  legislative  department.  If  the  legislature  commissions  private 
parties,  whether  corporations  or  individuals,  to  perform  this  duty,  it  is  its 
prerogative  to  fix  the  fares  and  freights  which  they  may  charge  for  their 
services.  .  .  .  But  it  is  said  that  all  charges  should  be  reasonable,  and  that 
none  but  reasonable  charges  can  be  exacted  ;  and  it  is  urged  that  what  is  a 
reasonable  charge  is  a  judicial  question.  On  the  contrary,  it  is  preeminently 
a  legislative  one,  involving  considerations  of  policy  as  well  as  of  remunera- 
tion ;  and  is  usually  determined  by  the  legislature,  by  fixing  a  maximum  of 
charges  in  the  charter  of  the  company,  or  afterwards,  if  its  hands  are  not 
tied  by  contract.  If  this  maximum  is  not  exceeded,  the  courts  cannot  inter- 
fere. .  .  .  Thus,  the  legislature  either  fixes  the  charges  at  rates  which  it 
deems  reasonable,  or  merely  declares  that  they  shall  be  reasonable ;  and  it 
is  only  in  the  latter  case,  where  what  is  reasonable  is  left  open,  that  the  courts 
have  jurisdiction  of  the  subject.  I  repeat :  when  the  legislature  declares 
that  the  charges  shall  be  reasonable,  or,  which  is  the  same  thing,  allows  the 
common-law  rule  to  that  effect  to  prevail,  and  leaves  the  matter  there  ;  then 
resort  may  be  had  to  the  courts  to  inquire  judicially  whether  the  charges  are 
reasonable.  Then,  and  not  till  then,  is  it  a  judicial  question.  But  the  legisla- 
ture has  the  right,  and  it  is  its  prerogative,  if  it  chooses  to  exercise  it,  to 
declare  what  is  reasonable. 

This  is  just  where  I  differ  from  the  majority  of  the  court.  They  say  in 
effect,  if  not  in  terms,  that  the  final  tribunal  of  arbitrament  is  the  judiciary  ; 
r  say  it  is  the  legislature.  I  hold  that  it  is  a  legislative  (juestion,  not  a  judicial 
one,  unless  the  legislature  or  the  law  (which  is  the  same  thing)  lias  made  it 
judicial,  by  prescribing  the  rule  that  the  charges  shall  be  reasonable,  and 
leaving  it  there.  It  is  always  a  delicate  thing  for  the  courts  to  make  an  issue 
with  the  legislative  department  of  the  government,  and  they  should  never  do 
so  if  it  is  possible  to  avoid  it.  By  the  decision  now  made  we  declare,  in 
effect,  that  the  judiciary,  and  not  the  legislature,  is  the  final  arbiter  in  the 
regulation  of  fares  and  freights  of  railroads  and  the  charges  of  other  public 
accommodations.  It  is  an  assumption  of  authority  on  the  ])art  of  tlie  judi- 
ciary which,  it  seems  to  me,  with  all  due  deference  to  the  judgment  of  my 
brethren,  it  has  no  right  to  make.  ...    It  is  complained  that  the  decisions 


OOG  RAILWAY   PROBLEMS 

of  the  board  are  final  and  without  appeal.  So  are  the  decisions  of  the  courts 
in  matters  within  their  jurisdiction.  There  must  be  a  final  tribunal  some- 
wiiere  for  deciding  every  question  in  the  world.  Injustice  may  take  place  in 
all  tribunals.  All  human  institutions  are  imperfect  —  courts  as  w'ell  as  com- 
missions and  legislatures.  Whatever  tribunal  has  jurisdiction,  its  decisions 
are  final  and  conclusive  unless  an  appeal  is  given  therefrom.  The  important 
question  always  is,  what  is  the  lawful  tribunal  for  the  particular  case  ?  In 
my  judgment,  in  the  present  case,  the  proper  tribunal  was  the  legislature,  or 
the  board  of  commissioners  which  it  created  for  that  pui-pose.  ...  It  may 
be  that  our  legislatures  are  invested  with  too  much  power,  open,  as  they  are, 
to  influences  so  dangerous  to  the  interests  of  individuals,  corporations,  and 
society.  But  such  is  the  constitution  of  our  republican  form  of  government ; 
and  we  are  bound  to  abide  by  it  until  it  can  be  corrected  in  a  legitimate  way. 
If  our  legislatures  become  too  arbitrary  in  the  exercise  of  their  powers,  the 
people  have  always  a  remedy  in  their  hands  ;  they  may  at  any  time  restrain 
them  by  constitutional  limitations. 

This  strong  dissent,  in  1889,  gives  a  glimpse  of  the  conflict 
that  had  been  going  on  in  the  Supreme  Court  since  the  decision 
of  the  Granger  Cases,  in  1876.  As  far  as  can  be  seen  from  the 
line  of  decisions  noted,  only  two  of  the  seven  judges  who  decided 
those  cases  ever  receded  from  the  position  there  taken  that  the 
court  could  not  review  the  reasonableness  of  rates  fixed  by  a 
legislature.  Of  these  two  judges,  Waite  indicated  his  change 
of  view  by  the  dictum  above  quoted  from  Stone  v.  Farmers' 
Loan  &  Trust  Co.,  and  Miller  concurred  in  the  majority  decision 
of  the  Minnesota  case  just  considered,  by  a  separate  opinion. 

As  new  judges  came  on  to  the  Supreme  Bench,  the  support 
given  by  the  court  to  the  principles  of  the  Granger  Cases  grew 
less.  In  Chicago,  etc..  Railway  Co.  v.  Minnesota'^  the  scales 
were  turned  and  five  justices  —  Fuller,  Field,  Harlan,  Blatch- 
ford,  and  Brewer  —  supported  the  majority  opinion.  Of  the 
nine  judges  who  sat  in  the  Granger  Cases  only  Justices  Field, 
Miller,  and  Bradley  remained  to  take  part  in  the  case  last 
decided,  and  of  these  three  Justice  Bradley  alone  adhered  to  the 
fundamental  doctrine  of  the  earlier  decisions. 

By  Chicago,  etc..  Railway  Co.  v.  3Iinnesota  ^  the  Granger  Cases 
were  in  large  measure  overruled.    Due  process  of  law  was  no 

1  134  U.  S.  418.  2  134  u.  S.  418. 


WHAT  ARE  REASONABLE  RATES?  607 

longer  to  be  found  in  rates  fixed  by  states,  but  in  decisions  of 
the  court  as  to  what  was  reasonable.  Under  this  decision  the 
states  may  exercise  as  much  or  as  little  control  over  rates  as 
the  court  sees  fit  to  permit.    In  Munn  v.  Illinois  ^  the  court  said : 

The  controlling  fact  is  the  power  to  regulate  at  all.  If  that  exists,  the 
right  to  establish  the  maximum  of  charge,  as  one  of  the  means  of  regula- 
tion, is  implied. 

With  equal  force  it  may  be  said  that  assertion  by  the  court  of 
authority  to  review  the  reasonableness  of  rates  fixed  by  legis- 
latures opened  the  way  for  a  great  reduction  in  state  powers. 
Since  1889,  when  the  paramount  authority  of  the  court  was 
established  by  a  judicial  decision,  suits  to  invalidate  rates  fixed 
by  legislatures  have  multiplied  and  decisions  have  borne  with 
increasing  severity  on  state  powers. 

In  Budd  V.  Neiv  York,  decided  in  1892,  the  validity  of  a 
statute  of  that  state  was  contested  on  the  ground  that  rates 
fixed  by  it  for  elevating  and  storing  grain  were  not  within 
the  state  power  to  make  and  were  unreasonable.  Mr.  Justice 
Blatchford  in  delivering  the  opinion  of  the  court,  supported 
the  power  of  the  state  to  regulate  the  business  of  storing  grain 
and  said  : 

In  the  case  before  us,  the  records  do  not  show  that  the  charges  fixed  by 
the  statute  are  unreasonable,  or  that  property  has  been  taken  without  due 
process  of  law,  or  that  there  has  been  any  denial  of  the  equal  protection  of 
the  laws  ;  even  if  under  any  circumstances  we  could  determine  that  the 
maximum  rate  fixed  by  the  legislature  was  unreasonable. 

It  was  also  said  in  this  opinion,  referring  to  Chicago,  etc., 
Railway  Co.  v.  Minnesota : 

What  was  said  in  the  opinion  in  134  U.  S.,  as  to  the  question  of  the 
reasonableness  of  the  rate  of  charge  being  one  for  judicial  investigation, 
had  no  reference  to  a  case  where  the  rates  are  prescribed  directly  by  the 
legislature. 

This  statement  was  obiter  dicta,  pure  and  simple,  as  the  rates 
in  Budd  v.  New  York  were  not  shown  to  be  unreasonable,  was 
in  direct  conflict  with  the  language  of  the  Minnesota  case  and 

1 94  U.  S.  113. 


COS  KA1L\\A\     TKOI'.LEMS 

no  support  for  it  can  be  found  in  later  decisions.  Moreover,  the 
throe  dissenting  judges  in  the  Minnesota  case  certainly  under- 
stotxl  tlie  decision  there  to  appl}'  to  rates  fixed  directly  by  a 
legislature  as  well  as  to  tliose  fixed  by  a  commission.  It  is  to 
be  noted  that  the  Minnesota  statute  itself,  as  construed  by  the 
Supreme  Court  of  that  state,  was  declared  invalid  by  the  United 
States  Supreme  Court,  and  not  merely  the  rates  fixed  under 
the  statute.  This  statute  evidently  failed  because  it  denied  the 
right  of  the  courts  to  investigate  the  reasonableness  of  rates 
fixed  under  it. 

As  to  reasonable  rates  Budd  v.  New  York  ^  simply  shows  that 
their  unreasonableness  must  be  proved  before  the  court  will  hold 
them  void  on  that  ground.  Justices  Brewer,  Field,  and  Brown 
dissented  in  this  case. 

Brass  v.  North  Dakota  ^  involved  the  validity  of  a  statute  of 
that  state  that  fixed  rates  for  storing  grain.  The  case  turned  on 
the  power  of  the  legislature  to  fix  rates  at  all,  rather  than  on  the 
reasonableness  of  the  rates  actually  fixed.  The  court  upheld 
the  statute,  and  said  in  its  opinion,  delivered  by  Justice  Shiras  : 

We  are  limited  by  this  record  to  the  questions  whether  the  legislature 
of  North  Dakota  in  regulating  by  a  general  law  the  business  and  charges 
of  public  warehousemen  engaged  in  elevating  and  storing  grain  for  profit, 
denies  to  the  plaintiff  in  error  the  equal  protection  of  the  laws  or  deprives 
him  of  his  property  without  due  process  of  law,  and  whether  such  statutory 
regulations  amount  to  a  regulation  of  commerce  between  the  states. 

Justices  Brewer,  Field,  Jackson,  and  White  dissented,  leav- 
ing only  Fuller,  C.  J.,  and  Justices  Harlan,  Gray,  Brown,  and 
Shiras  to  decide  the  case. 

In  Chicago  ^  Grand  Trunk  Railway  v.  Wellman,^  decided  a 
few  months  earlier  than  Budd  v.  Netv  York,  the  court  upheld 
a  law  of  Michigan  regulating  railway  rates,  and  said : 

The  legislature  has  power  to  fix  rates,  and  the  extent  of  judicial  inter- 
ference is  protection  against  unreasonable  rates.  .  .  .  Surely  before  the 
courts  are  called  upon  to  adjudge  an  act  of  the  legislature  fixing  the  maxi- 
mum passenger  rates  for  railroad  companies  to  be  unconstitutional,  on  the 
ground  that  its  enforcement  would  prevent  stockholders  from  receiving  any 

1  143  U.  S.  517.  2  153  u_  §_  391,  3  143  y.  S.  339. 


WHAT  AKE  REASONABLE  RATES?  609 

dividends  on  their  investments,  or  the  bondholders  any  interest  on  their 
loans,  they  should  be  fully  advised  as  to  what  is  done  with  the  receipts  and 
earnings  of  the  company;  for  if  so  advised,  it  might  clearly  appear  that 
a  prudent  and  honest  management  would,  within  the  rates  prescribed, 
secure  to  the  bondholders  their  interest,  and  to  tlie  stockholders  reason- 
able dividends. 

The  opinion  delivered  by  Justice  Brewer  in  this  case  clearly 
upholds  the  doctrine  of  Chicago,  etc..  Railway  Co.  v.  Minnesota, 
that  the  court  has  power  to  review  the  reasonableness  of  rates 
fixed  by  a  legislature. 

Reagan  v.  Farmers'  Loan  ^  Trust  Co.^  furnished  another 
application  of  the  same  doctrine  hj  restraining  the  railway  com- 
mission of  Texas  from  enforcing  rates  fixed  under  a  statute  of 
that  state.  The  statute  provided  that  rates  fixed  under  it  were 
to  be  deemed  reasonable  until  finally  found  otherwise  in  a  direct 
action,  but  enforcement  of  the  rates  fixed  was  enjoined  before 
their  reasonableness  was  determined  by  evidence,  in  spite  of  the 
language  of  the  statute.  In  the  opinion  of  the  court,  delivered 
by  Justice  Brewer,  affirming  the  preliminary  injunction  and 
holding  the  rates  unreasonable  and  void,  it  was  said: 

Is  there  anything  which  detracts  from  the  force  of  the  general  allegation 
that  these  rates  are  unjust  and  unreasonable?  This  clearly  appears.  The 
cost  of  this  railroad  property  was  ^40,000,000  ;  itcaunot  be  replaced  to-day 
for  less  than  i$25,000,0()0.  There  are  !§ir>,000,000  of  mortgage  bonds  out- 
standing against  it,  and  nearly  §10,000,000  of  stock.  These  bonds  and  stock 
represent  money  invested  in  the  consti-uction  of  this  road.  The  owners  of 
the  stock  have  never  received  a  dollar's  worth  of  dividends  in  return  for  their 
investment.  The  road  was  thrown  into  the  hands  of  a  receiver  for  default 
in  payment  of  the  interest  on  the  bonds.  The  earnings  for  the  last  three 
years  prior  to  the  establishment  of  these  rates  were  insufficient  to  pay  the 
operating  expenses  and  the  interest  on  the  bonds.  In  order  to  make  good 
the  deficiency  in  interest  the  stockholders  luive  put  their  hands  in  their 
pockets  and  advanced  over  a  million  of  dollars.  The  8ui>|ilies  for  the  road 
have  been  purchased  at  as  cheap  a  rate  as  possible.  The  officers  and 
employees  have  been  paid  no  more  than  is  necessary  to  secure  men  of  the 
skill  and  knowledge  recjuisite  to  suitable  operation  of  the  road.  Hy  the 
voluntary  action  of  the  company  the  rate  in  cents  per  ton  per  mile  has  de- 
creased in  ten  years  from  2.03  to  1.30.  The  actual  roduclion  by  virtue  of 
this  tariff  in  the  receipts  during  the  six  or  eight  months  that  it  has  been 

1  104  U.  S.  .'302. 


mo  rvAILAVAY  PKOr.LEMS 

enforced  amounts  to  over  $150,000.  Can  it  be  that  a  tariff  which  under 
tliese  circumstances  has  worked  such  results  to  the  parties  whose  money 
built  this  road  is  other  tlian  unjust  or  unreasonable? 

It  may  be  suggested  that  the  decision  in  this  case  rested  on 
the  provision  of  the  Texas  statute  that  suits  might  be  brought 
to  determine  the  reasonableness  of  rates  fixed  by  tlie  commission. 
This  view  cannot  be  maintained,  however,  because  the  statute 
expressly  provided  that  rates  so  fixed  should  be  deemed  reason- 
able until  finally  found  otherwise  in  an  action  brought  by  the 
dissatisfied  party,  and  that  in  such  actions  "  the  burden  of 
proof  shall  rest  upon  the  plaintiff,  who  must  show  by  clear  and 
satisfactory  evidence  that  the  rates,  regulations  (etc.),  com- 
plained of  are  unreasonable  and  unjust."  The  case  in  which  the 
injunction  restraining  the  commission  from  enforcing  the  rates 
in  question  was  granted  came  up  to  the  Supreme  Court  on 
demurrer  by  the  commissioners  and  the  Attorney-General  to 
the  complaint  of  the  Trust  Company,  so  that  there  was  no  hear- 
ing on  the  merits  as  the  statute  required.  In  deciding  the  case 
the  court  went  on  the  broad  ground  that  it  had  power  to  deter- 
mine whether  rates  fixed  by  states  were  reasonable.  This  was 
shown  by  the  statement  in  the  course  of  the  opinion 

that  no  legislation  of  a  State,  as  to  the  mode  of  proceeding  in  its  own 
courts,  can  abridge  or  modify  the  powers  existing  in  the  Federal  courts 
sitting  as  courts  of  equity. 

And  also  that  there  could  be 

no  doubt  of  their  power  and  duty  to  inquire  whether  a  body  of  rates  pre- 
scribed by  a  legislature  or  a  commission  is  unjust  and  unreasonable,  and 
such  as  to  work  a  practical  destruction  to  rights  of  property,  and  if  found 
so  to  be,  to  restrain  its  operation. 

The  court  modified  the  force  of  its  decision  by  the  statement 
that 

It  is  unnecessary  to  decide,  and  we  do  not  wish  to  be  understood  as 
laying  down  as  an  absolute  rule,  that  in  every  case  a  failure  to  produce 
some  profit  to  those  who  have  invested  their  money  in  the  building  of  a 
road  is  conclusive  that  the  tariff  is  unjust  and  unreasonable.  .  .  .  There 
may  be  cii'cumstances  which  would  justify  such  a  tariff  ;  there  may  have 


AVHAT  ARE  REASONABLE  RATES?  611 

been  extravagance  and  needless  expenditure  of  money ;  there  may  be  waste 
in  the  management  of  the  road;  enormous  salaries,  unjust  discrimination 
as  between  individual  shippers,  resulting  in  general  loss.  The  construction 
may  have  been  at  a  time  when  material  and  labor  were  at  the  highest 
price,  so  that  the  actual  cost  far  exceeds  the  present  value  ;  the  road  may 
have  been  unwisely  built,  in  localities  where  there  is  no  sufficient  business 
to  sustain  a  road.  Doubtless,  too,  there  are  many  other  matters  affecting 
the  rights  of  the  community  in  which  the  road  is  built  as  well  as  the  rights 
of  those  who  have  built  the  road. 

Evidently  this  case  decides  only  that  under  the  circumstances 
stated  a  road  is  entitled  to  earn  interest  on  its  bonds  and  some- 
thing for  its  stockholders,  besides  paying  necessary  operating 
expenses.  How  much  the  return  to  stockholders  may  be  is  not 
decided.  As  no  evidence  was  taken,  it  does  not  appear  how  the 
court  knew  that  the  failure  of  the  road  to  earn  "  some  profit " 
was  not  due  to  some  of  the  "  matters  "  named  above. 

In  the  case  just  considered  and  also  in  that  of  St.  Louis  ^  San 
Francisco  Raihvay  v.  Grill}  decided  during  the  same  year,  1894, 
there  was  no  dissent,  but  the  entire  court  concurred  in  the 
opinion.  These  two  cases  present  interesting  comparisons,  as 
the  railway  company  in  each  sought  protection  from  a  law 
for  the  regulation  of  rates,  and  each  alleged  in  its  pleadings 
that  the  rates  fixed  for  transportation  would  yield  no  profit  on 
the  invested  capital,  and  each  case  was  decided  on  demurrer. 

The  case  of  St.  Louis  ^  Santa  Fe  Railway  v.  Gill  came  up 
under  a  law  of  Arkansas,  passed  in  1887,  that  fixed  a  maxinmm 
rate  of  three  cents  per  mile  for  the  transportation  of  passengers 
on  railroads  of  that  state,  and  named  a  penalty  of  f300  payable 
to  any  passenger  from  whom  an  overcharge  was  exacted.  Gill 
was  charged  five  cents  per  mile  and  obtained  a  verdict  in  the 
state  courts  against  the  railway  for  the  amount  of  the  penalty. 
The  railway  took  the  case  to  the  Supreme  Court  on  the  ground 
that  the  rate  fixed  by  statute  would  result  in  a  taking  of  its 
property  without  due  process  of  law.  Proof  was  offered  for  the 
railway  that  on  the  branch  where  Gill  was  chaiged  five  cents 
per  mile  the  actual  cost  to  the  railway  was  3.3  cents  per  mile 

1  156  U.  S.  049. 


612  RAILWAY  PROBLEMS 

for  each  passenger  carried  ;  tliat  this  branch  line  had  never 
earned  more  than  1  per  cent  annually  above  actual  operating 
expenses  on  the  capital  stock  that  had  been  paid  in  casli  and 
invested  in  tliis  line.  These  offers  of  proof  were  not  accepted, 
and  the  demurrer  of  Gill  to  the  pleadings  of  the  railway  was 
sustained  by  the  court  in  an  opinion  sustaining  the  validity  of 
the  rates  fixed  by  the  Arkansas  law.  The  opinion,  delivered 
by  Justice  Shiras,  took  occasion  to  assert  the  power  claimed 
in  previous  cases,  by  saying : 

This  court  lias  declared,  in  several  cases,  that  there  is  a  remedy  in  the 
courts  for  relief  against  legislation  establishing  a  tariff  of  rates  which  is  so 
unreasonable  as  to  practically  destroy  the  value  of  property  of  companies 
engaged  in  the  carrying  business,  and  that  especially  may  the  courts  of  the 
United  States  treat  such  a  question  as  a  judicial  one,  and  hold  such  acts  of 
legislation  to  be  in  conflict  with  the  Constitution  of  the  United  States,  as 
depriving  the  companies  of  their  property  without  due  process  of  law,  and 
as  depriving  them  of  the  equal  protection  of  the  laws. 

The  line  of  railway  on  which  Gill  was  charged  five  cents  per 
mile,  and  to  which  the  offers  of  proof  seemed  to  refer,  extended 
from  the  northern  boundary  of  Arkansas  to  Fayetteville  in  that 
state,  and  had  formerly  been  owned  by  a  separate  company. 
Referring  to  these  circumstances  the  court  said  : 

In  this  state  of  facts  we  agree  with  the  views  of  the  supreme  court  of 
Arkansas,  as  disclosed  in  the  opinion  contained  in  the  record,  and  which 
were  to  the  effect  that  the  correct  test  was  as  to  the  effect  of  the  act  on  the 
defendant's  entire  line,  and  not  upon  that  part  which  was  formerly  a  part 
of  one  of  the  consolidating  roads ;  the  company  cannot  claim  the  right  to 
earn  a  net  profit  from  every  mile,  section,  or  other  part  into  which  the  road 
might  be  divided. 

Finally  came  the  important  statement  that 

Even  if  the  evidence  could  be  understood  as  applicable  to  the  entire  line 
in  Arkansas,  there  was  no  finding  of  the  facts  necessary  to  justify  the 
courts  in  overthrowing  the  statutory  rates  as  unreasonable,  but  that,  on 
the  contrary,  the  company's  case  depended  on  allegations  admitted  by  the 
demurrer  of  a  party  who,  in  no  adequate  sense,  represented  the  public. 

This  case  seems  to  represent  an  effort  of  the  court  to  stay  the 
tendency  of  former  decisions  toward  the  destruction  of  state 


WHAT  AKE  REASONABLE  RATES?  613 

power  in  the  regulation  of  rates.  It  is  liard  to  see  why  the  rales 
on  a  distinct  line  of  railway  should  not  be  regulated  according 
to  the  investment  and  expense  of  operation  on  that  line,  even 
though  the  line  in  question  forms  only  a  part  of  a  large  con- 
solidated system. 

The  demurrer  by  a  private  litigant  as  a  barrier  to  judicial 
annulment  of  rates  fixed  by  legislatures  did  not  stand  the 
test  of  the  next  case  on  the  subject  that  came  before  the  court, 
namely,  Covington^  etc.^  Turnpike  Co.  v.  Sandford?-  By  an  act 
of  the  Kentucky  legislature  in  1890  the  rate  of  toll  that  might 
be  charged  on  the  turnpike  owned  by  the  company  just  named 
was  reduced.  Sandford  obtained  an  injunction  in  the  state 
courts  which  required  the  turnpike  company  to  charge  no  more 
than  the  statutory  rate  of  toll.  From  this  injunction  the  com- 
pany sought  relief  in  the-  Supreme  Court  on  the  ground  that 
the  reduction  in  rates  would  take  its  property  without  due 
process  of  law.  In  the  decision  of  the  Supreme  Court,  prepared 
by  Justice  Harlan,  it  was  said  that  the  answer  of  the  company 

alleged  that  the  receipt  for  tlie  several  jireceding  years  had  not  admitted 
of  dividends  greater  than  4  per  cent  on  the  par  vahie  of  the  company's 
stock  ;  that  the  act  of  1 890  reduced  the  tolls  50  per  cent  below  those 
allowed  by  the  act  of  1865;  and  that  such  reduction  would  so  diminish 
the  income  of  the  company  that  it  could  not  maintain  its  road,  meet  its 
ordinary  expenses,  and  earn  any  dividends  whatever  for  stockholders. 

These  allegations  were  sufficiently  full  as  to  the  facts  necessary  to  be 
pleaded,  and  fairly  raised  for  judicial  determination  the  question  —  assum- 
ing the  facts  stated  to  be  true  —  whether  the  act  of  1890  was  in  deroga- 
tion of  the  company's  constitutional  rights.  It  made  a  prima  facie  case  of 
the  invalidity  of  that  statute. 

This  opinion  reversed  the  action  of  the  Kentucky  courts 
which  granted  the  injunction,  though  no  evidence  was  before 
the  court  that  the  allegations  of  the  company  in  its  pleadings 
were  true.  Sandford  acted  in  this  case  simply  as  a  pi-ivate  pei- 
son  who  wished  to  use  the  turnpike,  and  the  admissions  of  his 
demurrer  to  the  pleadings  of  the  company  were  held  suflicient 
ground  on  which  to  overturn  the  statute.    The  previous  decision 

1  1G4  U.  S.  578. 


614  EAILWAY  PROBLEMS 

in  the  Gill  case  that  a  statute  cannot  be  held  invalid  on  the  de- 
murrer of  a  private  person  was  thus  overruled.  Admitting  the 
statements  in  the  pleadings  of  the  company  in  this  Sandford 
case  to  be  true,  the  case  simply  follows  the  rule  previously  laid 
down  that  rates  cannot  be  reduced  to  a  point  where  they  allow 
no  return  on  the  investment  above  operating  expenses.  This 
case,  decided  in  1896,  was  concurred  in  by  the  entire  court. 
Though  not  required  for  the  decision  of  the  case,  it  was  stated 
in  the  course  of  the  opinion  that 

It  cannot  be  said  that  a  corporation  is  entitled,  as  of  right,  and  without 
reference  to  the  interests  of  the  public,  to  realize  a  given  per  cent  upon  its 
capital  stock.  When  the  question  arises  "whether  the  legislature  has  ex- 
ceeded its  constitutional  power  in  prescribing  rates  to  be  charged  by  a 
corporation  controlling  a  public  highway,  stockholders  are  not  the  only 
persons  whose  rights  or  interests  are  to  be  considered.  ...  If  a  corpora- 
tion cannot  maintain  such  a  highway  and  earn  dividends  for  stockholders, 
it  is  a  misfortune  for  it  and  them  which  the  constitution  does  not  require 
to  be  remedied  by  imposing  unjust  biu'dens  upon  the  public. 

These  dicta  indicate  that  there  might  be  instances  due  to 
unwise  investments,  or  perhaps  to  competition,  where  a  corpo- 
ration would  not  be  protected  in  a  right  to  earn  any  return  on 
its  investment. 

The  next  case  to  come  before  the  court  involving  the  reason- 
ableness of  rates  fixed  by  state  authority  was  that  of  Smyth  v. 
Ames,  decided  in  1898.^  A  notable  difference  between  this  case 
and  those  that  had  preceded  it  lay  in  the  fact  that  the  decision 
of  the  court  was  based  on  evidence  taken  at  the  trial  as  to  the 
investments  and  earnings  of  the  railways  involved,  instead  of  on 
allegations  or  admissions  of  parties  to  the  suit.  The  case  arose 
under  a  Nebraska  statute  of  1893,  that  prescribed  rates  for  the 
transporation  of  freight  on  railways  in  that  state,  by  a  prayer 
on  the  part  of  persons  interested  in  these  railways  for  an  in- 
junction to  prevent  enforcement  of  these  rates.  In  a  unani- 
mous opinion,  delivered  by  Justice  Harlan,  the  court  said : 

We  hold,  however,  that  the  basis  of  all  calculations  as  to  the  reasonable- 
ness of  rates  to  be  charged  by  a  corporation  maintaining  a  highway  under 

1  169  U.  S.  466. 


WHAT  AEE  REASONABLE  RATES?  615 

legislative  sanction  must  be  the  fair  value  of  the  property  being  used  by  it 
for  the  convenience  of  the  public.  And  in  order  to  ascertain  that  value, 
the  original  cost  of  construction,  the  amount  expended  in  permanent  im- 
provements, the  amount  and  market  value  of  its  bonds  and  stock,  the  pres- 
ent as  compared  with  the  original  cost  of  construction,  the  probable  earning 
capacity  of  the  property  under  particular  rates  prescribed  by  statute,  and 
the  sum  required  to  meet  operating  expenses,  are  all  matters  for  considera- 
tion, and  are  to  be  given  such  weight  as  may  be  just  and  right  in  such  case. 
We  do  not  say  that  there  may  not  be  other  matters  to  be  regarded  in 
estimating  the  value  of  the  property.  What  the  company  is  entitled  to 
ask  is  a  fair  return  upon  the  value  of  that  which  it  employs  for  the  public 
convenience.  On  the  other  hand,  what  the  public  is  entitled  to  demand  is 
that  no  more  be  exacted  from  it  for  the  use  of  a  public  highway  than  the 
services  rendered  by  it  are  reasonably  worth.  But  even  upon  this  basis, 
and  determining  the  probable  effect  of  the  act  of  1893  by  ascertaining  what 
could  have  been  its  effect  if  it  had  been  in  operation  during  the  three  years 
immediately  preceding  its  passage,  we  perceive  no  ground  on  the  record 
for  reversing  the  decree  of  the  circuit  court.  On  the  contrary,  we  are  of 
opinion  that  as  to  most  of  the  companies  in  question  there  would  have  been, 
under  such  rates  as  were  established  by  the  act  of  1893,  an  actual  loss  in 
each  of  the  years  ending  June  30,  1891,  1892,  and  1893;  and  that,  in  the 
exceptional  cases  above  stated,  when  two  of  the  companies  would  have 
earned  something  above  operating  expenses,  in  particular  years,  the  re- 
ceipts or  gains,  above  operating  expenses,  would  have  been  too  small  to 
affect  the  general  conclusion  that  the  act,  if  enforced,  would  have  deprived 
each  of  the  railroad  companies  involved  in  these  suits  of  the  just  compen- 
sation secured  to  them  by  the  Constitution. 

The  injunction  confirmed  by  the  court  in  this  case  enjoined 
the  Nebraska  Board  of  Transportation  and  the  Attorney-General 
of  the  state  from  taking  any  steps  to  enforce  the  rates  fixed  by 
the  act  of  1893.  It  should  be  noted  that  the  court  based  its 
decision  on  the  income  that  would  have  been  derived  from  the 
local  freight  actually  carried  by  the  railways  during  the  fiscal 
years  of  1891,  1892,  and  1893,  ending  June  30,  at  the  rates 
prescribed  by  the  act  which  took  effect  August  1,  1893.  This 
takes  no  account  of  the  fact  that  a  decrease  in  rates  may  be  fol- 
lowed by  an  increase  in  traffic,  especially  as  to  heavy  farm  prod- 
uce which  it  may  not  pay  to  move  at  all  if  the  freight  is  more 
than  a  very  moderate  figure. 

The  most  important  rule  laid  down  by  the  case  is  that  the 
basis  of  calculations  as  to  reasonable  rates  of  a  corporation  "  must 


mo  KAILWAV    PKor.LKMS 

be  the  fair  value  of  the  property  being  used  by  it  for  the  con- 
venience of  the  public." 

This  statement  with  others  in  the  opinion,  appears  to  limit 
''  fiur  value  "  to  that  of  the  physical  propei'ty  and  to  exclude 
franchise  valuations.  Unless  the  value  of  the  physical  property 
employed  in  a  public  service  and  the  actual  cost  of  performing 
that  service  are  to  be  taken  as  the  basis  of  rate  calculations,  the 
amount  of  rates  Avould  appear  to  depend  mainly  on  the  arbitrary 
opinion  of  the  company  or  legislature  making  them.  Though 
the  majority  of  the  railways  in  Nebraska  could  have  made  noth- 
ing on  their  investments  under  the  rates  prescribed  by  the  act 
of  1893,  as  the  court  understood  the  evidence,  yet  the  opinion 
states  that  two  companies  could  have  earned  "  something  "  above 
operating  expenses.  Reference  to  the  evidence  on  which  the 
court  relied,  and  which  was  repeated  in  the  opinion,  shows  that 
this  something  amounted  to  1.99,  4.06,  6.84  and  10.63  percent 
annually  on  the  values  of  the  railways.  Unless  the  court  thought 
that  this  rate  of  net  earnings  was  so  small  as  to  amount  to  a 
taking  of  property  without  due  process,  it  does  not  appear  why 
the  Nebraska  act  was  unconstitutional  as  to  the  roads  making 
this  rate.  Accordinof  to  dicta  in  the  Sandford  case  above  cited, 
an  act  might  be  constitutional  as  to  some  roads  and  unconstitu- 
tional as  to  the  others. 

A  still  later  case  in  the  Supreme  Court,  that  of  Cotting  v. 
Goddard,  decided  in  1901,  goes  farther  than  any  of  the  foregoing 
in  its  limitation  of  state  powers.  This  case  arose  under  a  Kansas 
statute  of  1897  that  fixed  charges  for  handling  live  stock  at  stock 
yards  where  more  than  a  certain  amount  of  business  was  done, 
and  affected  the  yards  at  Kansas  City.  Petitions  were  filed  asking 
that  the  Attorney-General  of  Kansas  be  restrained  from  enforcing 
the  statute  as  to  these  yards,  and,  after  hearings  in  which  evi- 
dence was  taken  as  to  the  value  of  the  yards  and  the  annual  earn- 
ings, the  injunction  was  granted.  In  the  course  of  the  unanimous 
opinion  of  the  court,  delivered  by  Justice  Brewer,  it  was  said: 

If  the  rates  prescribed  l)y  the  Kansas  statute  for  yarding  and  feeding 
stock  had  been  in  force  during  the  year  1896,  the  income  of  the  stock- 
yards company  wovUd  have  been  reduced  that  year  $300,651.77,  leaving  a 


WHAT  AKE   REASONABLE   RATES?  617 

net  income  of  $289,910.96.  This  would  have  yielded  a  return  of  5.8  per 
cent  on  the  value  of  the  property  used  for  stock-yard  purposes,  as  fixed  by 
the  master. 

Tlie  actual  net  income  of  the  company  during  1896,  as  found 
by  the  master  and  the  court  below,  was  -$590,558.73,  and  the 
value  of  its  property  in  the  stock  yards  was  15,388,003.25,  so 
that  its  net  income  during  that  year  amounted  to  nearly  11  per 
cent  on  its  investment.  After  pointing  out  the  liability  of  a 
person  engaged  in  the  operation  of  public  stock  yards  to  some 
legislative  regulation,  the  court  proceeded  to  define  the  limits 
of  such  regulation,  and  said  : 

The  question  is  not  how  much  he  makes  out  of  his  volume  of  business, 
but  whether  in  eacli  particular  transaction  the  charge  is  an  unreasonable 
exaction  for  the  services  rendered.  He  has  a  right  to  do  business.  He  has 
a  right  to  charge  for  each  separate  service  tliat  which  is  reasonable  compen- 
sation therefor,  and  tlie  legislature  may  not  deny  him  such  reasonable  com- 
pensation, and  may  not  interfere  simply  because  out  of  the  multitude  of 
his  transactions  the  amount  of  his  profits  is  large. 

These  reasons  for  the  decision  of  the  court  are  negative  in 
character.  They  tell  us  that  it  matters  not  that  profits  are  large 
if  rates  are  only  reasonable.  But  what  are  reasonable  rates? 
How  are  they  to  be  determined  if  considerations  as  to  invest- 
ments and  profits  are  put  aside  ?  If  reasonable  rates  do  not 
imply  reasonable  profits,  where  is  the  amount  of  charge  to  stop 
short  of  what  the  person  receiving  the  service  can  be  induced 
to  pay? 

A  quarter  of  a  century  has  transferred  the  test  of  reasonable 
rates  from  the  opinions  of  state  legislatures  to  the  oj)ini()n  of 
the  Supreme  Court.  In  the  Granger  Cases  the  court  denied  its 
right  to  interfere  with  local  rates  fixed  by  legislatures,  even 
when  these  rates  were  so  low  as  to  destroy  all  profits.  This 
doctrine,  after  various  adverse  dicta,  was  fully  repudiated  by 
the  case  of  Chicago,  etc..  Railway  Co.  v.  Mimwsota,  decided  in 
1889,  thirteen  years  after  the  Cranger  Cases.  From  that  date 
to  1896,  when  Covinr/fon,  etc.,  v.  Sandford  was  decided,  the 
court  went  no  farther  than  to  hold  that  legislative  rates  must 
afford  some  income  above  operating   expenses.    Another  step 


618  RAILWAY  PROBLEMS 

was  taken  the  following  year,  when  the  court  held  in  Smyth  v. 
Ames  that  rates  which  permitted  a  net  profit  of  as  much  as 
10.63  per  cent  on  one  road,  but  nothing  on  others,  could  not 
be  enforced  as  to  either. 

Finally,  in  1901  comes  the  decision,  in  Ootting  v.  G-oddard, 
that  rates  which  yield  a  profit  of  10.9  per  cent  on  the  invest- 
ment are  not  unreasonable,  and  that  rates  which  would  reduce 
this  profit  to  5.3  per  cent  are  unconstitutional. 

Alton  D.  Adams 


XXIV 

THE   DOCTRINE   OF  JUDICIAL  REVIEW  i 

TX/'E  are  now  to  undertake  an  investigation  of  the  influence 
*  '  which  the  doctrine  of  judicial  review  has  exerted  on 
our  American  system  of  railroad  control,  in  order  to  discover 
whether  it  has  strengthened  or  weakened  the  efficiency  of  that 
control.  In  this  inquiry  we  shall  consider,  first,  its  effect  on  the 
gtate's  power  to  reduce  rates  ;  second,  its  effect  on  the  state's 
power  to  enforce  the  rates  it  has  established  ;  and  third,  its 
effect,  as  a  resultant  of  the  other  two,  upon  the  spirit  and  ideas 
of  railroad  commissions. 

Before  coming  to  these  precise  questions,  however,  we  shall 
do  well  to  reflect  for  a  moment  upon  the  spirit  of  the  law  which 
has  shaped  the  doctrine  of  judicial  review,  and  which  directs  its 
application ;  for  it  will  serve  to  illumine  our  entire  discussion 
of  this  subject  to  recall  at  the  outset  the  general  attitude  of  the 
law  and  of  the  courts  in  all  cases  which  involve  both  public  and 
private  interests.  The  attitude  of  the  courts  is  determined  by 
the  fact  that  they  are  charged  with  the  duty  of  interpreting  and 
applying  a  law  in  which  the  individualistic  spirit  of  the  age  has 
been  firmly  crystallized.  In  our  modern  regime  the  individual 
is  the  central  figure.  His  importance,  his  dignity,  his  sanctity, 
his  rights,  and  his  liberties  are  everywhere  recognized.  His  use 
of  a  free  ballot  is  supposed  to  guard  civil  rights  and  to  shape 
aright  the  course  of  government ;  his  pursuit  of  his  individual 
self-interest  is  supposed  to  secure  industrial  justice  and  welfare; 
his  freedom  of  conscience,  of  thought,  of  will,  and  of  action  is 
not  to  be  lightly  infringed.  "  All  men  are  created  free  and 
equal,"  says  our  Declaration  of  Independence,  "  and  are  endowed 

1  From  "Railroad  Rate  Control,"  by  Harrison  Standish  Smalley,  Ph.D., 
Publications  of  the  American  Economic  Association,  3d  series,  Vol.  VII,  1906, 
pp.  83-110. 

619 


()-jO  KAIL  WAV   PKOBLEMS 

by  their  Creator  witli  certain  inalienable  rights.  ...  To  secure 
these  rif/hts,  governments  are  established  among  men^  The  only 
limitation  upon  them  is  that  they  shall  not,  in  their  exercise, 
encroach  upon  the  equal  rights  of  other  individuals. 

It  is  true  that  this  is  a  theory  which  has  been  gradually  losing 
its  hold  both  upon  the  minds  and  upon  the  hearts  of  men.  So 
pernicious  have  been  some  of  its  results,  especially  in  the  world 
of  industry,  that  the  inquiry  now  is  whether  it  has  not  passed 
the  zenith  of  its  usefulness,  and  whether  it  is  not  now  necessary 
to  modify  it  by  an  assertion  of  the  social  duties  and  responsibil- 
ities of  individuals,  and  accordingly,  by  the  enactment  of  laws 
restricting  the  individual  for  the  general  good.  In  this  inquiry 
different  minds  have  pursued  different  courses,  have  gone  dif- 
ferent lengths,  and  have,  of  course,  reached  different  conclusions. 
Socialists  would  have  us  abandon  the  theory  of  individualism 
entirely  and  substitute  therefor  a  theory  of  social  duty,  to  be 
applied  by  the  state.  Long  since,  more  conservative  minds  sug- 
gested factory  legislation.  Some  thirty  years  ago,  the  consen- 
sus of  public  opinion  demanded  regulation  of  railroads  for  the 
public  good.  To-day  there  is  agitation  for  municipal  owner- 
ship, trust  regulation,  and  other  limitations  upon  private  enter- 
prise. This  view  is  not  intended  to  be  complete.  Its  purpose 
is  merely  to  recall  the  fundamental  theory  upon  which  our  soci- 
ety is  based,  and  some  of  the  modifications  of  it  which  have 
been  urged  by  many  from  time  to  time. 

But  w^hile  observing  the  gradual  departure  from  the  theory 
of  individualism  in  industrial  economics  we  must  always  remem- 
ber that  the  law  under  which  we  live  grew  up  with  the  growth 
of  the  individualistic  theory  and  has  received  its  stamp.  The 
history  of  the  English  law  is  a  record  of  the  successful  struggle 
of  the  individual,  first  for  recognition,  and  then  for  supremacy. 
Indeed  our  law  is  permeated,  saturated,  with  the  theoryL_of_in- 
dividual  rights.  Two  centuries  ago  English  law  had  been  shaped 
to  that  theory,  while  in  our  country  it  no  less  lies  at  the  basis 
of  our  law ;  and  its  dignity  has  been  recognized  in  the  bills  of 
rights  of  our  state  constitutions,  and  in  most  of  the  Amendments 
to  the  Federal  Constitution.    Such  limitations  as  the  state  may 


JUDICIAL   RATE  IlEVIEW  621 

impose  on  private  rights  are  regarded  as  exceptions  to  the  gen- 
eral rule,  repugnant  to  the  spirit  and  genius  of  the  law,  and 
therefore  to  be  confined  within  strict  bounds.  Moreover  —  and 
this  is  a  point  of  deep  significance  —  for  almost  all  purposes  the 
law  considers  those  artificial  persons,  corporations,  as  individuals 
entitled  to  the  legal  rights  and  privileges  of  natural  persons. 

This  is  the  law  which  our  courts  are  established  to  interpret 
and  apply.  "  The  primary  duty  of  the  courts,"  said  Mr.  Justice 
Brewer,  in  deciding  Railway  Co.  v.  Bey,  "  is  the  protection  of 
the  rights  of  persons  and  property."  ^  And  again,  speaking  for 
the  Supreme  Court  in  the  Wellman  case,  he  said,  "  the  pro- 
tection of  vested  rights  of  property  is  a  supreme  duty  of  the 
courts."  2  This  duty,  it  must  be  admitted,  has  not  been  neglected. 
In  railroad  rate  cases  its  demands  have  been  faithfully  obeyed. 

Such  being  the  character  of  the  law  in  which  our  judges  are 
trained,  and  such  being  the  acknowledged  duty  of  the  courts 
in  Its  application,  it  is  but  natural  that  the  professional  sym- 
plitEies'of  judges  should  all  be  with  the  railroads.  Not  that  the 
judges,  as  men,  are  callous  to  the  abuses  which  for  a  third  of 
a  century  have  irritated  the  general  public,  sometimes  beyond 
the  point  of  endurance  ;  but  nevertheless,  as  judges,  they  must 
apply  a  law  which  is  in  thorough  sympathy  with  pi'ivate  per- 
sons, their  property  and  rights,  and  which  knows  almost  nothing 
of  the  "  public  welfare  "  except  as  it  is  to  be  secured  through 
the  assertion  and  maintenance  of  individual  rights.  If  it  be 
true,  as  is  sometimes  stated,  that  judges  are  disposed  to  subor- 
dinate the  public  weal  to  individual  advantage,  it  is  because 
they^ve  entered  fully  into  the  spirit  of  a  system  of  law  whieli 
allows  no  other  course. 

In  the  light  of  these  general  ol)servations,  let  us  pio(?eed  to 
inquire  the  effect  of  the  doctrine  of  judicial  review,  as  developed 
and  applied  under  our  legal  system,  and  first  to  notice  the  man- 
ner in  which  it  has  affected  the  power  of  the  states  to  reduce 
rates. 

Low  rates  are  not,  of  course,  the  only  ideal  of  railroad  i-egu- 
lation.  Doubtless  the  most  important  thing  is  jjroportiori,  that 
1  35  Federal  Eeports,  872.  ^  143  United  States,  340. 


022  RAILWAY   PROBLEMS 

is,  a  proper  adjustment  of  rates  as  among  the  various  commod- 
ities and  the  various  localities.  But  given  this  adjustment,  the 
lower  rates  are,  the  better.  There  can  be  no  doubt  that  the  pub- 
lic interest  demands  that,  so  long  as  the  due  proportion  is  not 
disturbed,  rates  shall  be  as  low  as  possible.  A  commission,  there- 
fore, being  charged  with  the  duty  of  advancing  the  public  welfare, 
must  require  reductions  in  railroad  schedules  which  are  too  high 
to  be  in  accord  with  the  public  interest.  And  the  efficiency  of 
a  commission  must  depend  in  no  small  measure  on  its  ability  to 
accomplish  the  reductions  w^iich  are  demanded  by  considerations 
of  public  utility.    Now  how  great  is  its  ability  in  this  regard? 

Clearly,  if  its  action  in  the  matter  of  rates  were  final  and 
binding  upon  the  companies,  its  power  of  lowering  rates  would 
be  absolute.  There  would  be  no  obstacle  to  prevent  it  from 
meeting  in  the  most  complete  manner  the  requirements  of  the 
industrial  situation.  We  have  seen,  however,  that  its  rates  are 
subject  to  review  by  the  courts,  and  the  consequence  of  judicial 
review  has  been  to  seriously  impair  a  commissioner's  power  to 
reduce  rates.  While  it  is  impossible  to  measure  with  exactness 
the  extent  to  which  this  power  is  impaired,  it  is  possible  to  see 
that  the  limitation  placed  upon  the  commissions'  activity  in  this 
particular  is  very  great.  And  in  order  that  this  may  clearly 
appear,  let  us  consider  at  length  three  reasons  why  the  doctrine 
of  judicial  review,  as  practically  applied  by  the  courts,  stands 
in  the  way  of  public  reduction  of  rates.  These  reasons  may  be 
seated  as  follows : 

I.  The  doctrine  fixes  an  improper  limit  beyond  which  reduc- 
tion of  rates  cannot  be  carried.  ,  crw-p; 

IL  The  methods  employed  by  the  Supreme  Court  in  deter- 
mining the  effect  of  rates  on  earnings  are"  such  as  to  make  that 
effect  seem  more  disastrous  than  is  the  fact. 

III.  The  principles  recognized  by  the  Court  in  determining 
reasonableness  of  income  are  unduly  favorable  to  the  railroads, 
and  afford  no  adequate  protection  to  the  interests  of  the  public. 

These  propositions  we  shall  take  up  in  order. 

I.  The  first  limitation  upon  the  state's  power  to  reduce  rates 
is  found  in  that  part  of  the  doctrine  of  judicial  review  which 


JUDICIAL  RATE  EEVIEW  623 

requires  that  rates  shall  be  high  enough  to  permit  the  railroad 
company  to  secure  reasonable  earnmgs.  A  state  cannot  lower 
rates  so  as  to  reduce  earnings  below  that  point  without  making 
adequate  compensation  to  the  company  for  all  earnings,  below 
the  point  of  reasonableness,  which  are  so  taken.  For  to  take 
any  part  of  a  railroad's  '■'■  fair  returns  "  is  to  deprive  of  property, 
—  an  act  which,  under  the  Fourteenth  Amendment,  must  be 
accompanied  with  proper  reimbursement. 

This  phase  of  the  doctrine  of  judicial  review  is  certainly  sub- 
ject to  criticism,  and  the  criticism  touches  a  point  so  vital  as  to 
call  in  question  the  entire  doctrine.  The  vulnerable  point  is  the 
distinction  made  between  earnings  above  the  point  of  reason- 
ableness, and  earnings  below  that  point.  In  effect  the  Court 
declares  that  above  that  point  earnings  are  not  property ;  but 
below  it  they  are  property;  for  the  state  may  freely  ajjpropriate 
earnings  above  that  point  without  violating  the  constitutional 
provision  protecting  property,  though  to  take  any  below  that 
point  is  declared  to  be  a  violation  of  it.  This  distinction  is 
ingenious,  and  in  making  it  the  Court  has  perhaps  saved  from 
annihilation  the  state's  right  of  rate  control,  but  whatever  merit 
may  be  claimed  for  it  on  that  account,  it  may  be  admitted  that 
it  is  a  distinction  which  is  artificial  and  which  cannot  be  sup- 
ported by  reason.  For,  if  income  from  property  is  itself  property 
at  all,  surely  all  income  must  be  property.  To  divide  income 
into  two  parts  —  "•  property  "  and  "  not-property  "  —  giving  one 
part  thelpfotection  of  the  constitution,  and  leaving  the  other 
defenseless,  is  an  extraordinary  proceeding.  No  one  has  ever 
thought  oFlnaking  a  similar  division  in  the  case  of  any  other 
kind  of  property.  If  the  state  were  condemning  a  person's  lot, 
it  would  not  divide  the  lot  into  two  parts  and  say:  "one  of 
these  parts  is  property,  and  for  it  you  may  have  compensation ; 
but  the  other  is  not  property, '  and  for  it,  therefore,  no  payment 
will  be  made."  Such  a  proceeding  is  unheard  of,  even  in  the 
case  of  property  belonging  to  a  quasi-public  corporation.  It 
cannot  be  imagined  that  the  state,  in  taking  any  such  property, 
would  divide  it  into  two  parts  and  say :  "  one  of  these  parts  is 
property,  and  for  it  compensation  will  be  made,  but  no  payment 


624  IIAILWAY   FK0BLEM8 

will  be  imide  for  the  other  because  it  is  not  property,  since  you 
are  a  quasi-public  corporation  and,  your  property  being  devoted 
to  a  public  use,  a  part  of  it  has  ceased  to  be  property  "  !  But 
the  absurdity  is  more  clearly  seen  when  such  a  distinction  is 
applied,  not  to  real  estate  or  equipment  but  to  the  income  of 
railroads.  Suppose  the  state  were  to  seek  in  the  treasury  of  a 
railroad  company  the  earnings  it  had  received  from  the  operation 
of  its  road,  and  were  to  attempt  to  appropriate  those  earnings. 
There  is  not  the  least  doubt  that  if  the  appropriation  were  per- 
mitted at  all,  the  courts  would  require  the  state  to  reimburse 
the  company  for  every  cent  of  the  earnings  taken.  The  wildest 
stretch  of  the  imagination  cannot  picture  the  courts  saying  to 
the  state  :  "  a  part  of  these  earnings  are  reasonable,  and  hence 
are  property,  and  if  you  take  them  you  must  recompense  the 
company  ;  but  the  rest  of  the  earnings  are  not  property,  because 
not  reasonable,  and  you  can  have  them  for  nothing."  Yet  this 
is  just  w^hat  the  Supreme  Court  has  said  in  regard  to  depriving 
a  railroad  of  its  income  through  the  agency  of  low  rates.  The 
distinction  is  clearly  without  warrant  and  must  be  given  a  place 
among  the  pure  fictions  of  the  law. 

It  is  evident  from  the  absurdity  of  this  distinction,  which  the 
Court  has  found  it  necessary  to  maintain  in  order  to  prevent 
judicial  review  from  practically  denying  the  established  legis- 
lative power  of  rate  control,  that  somewhere  in  the  reasoning  of. 
the  Court  there  is  an  error  which  is  fundamental  and  which 
vitiates  the  whole  process.  That  error,  it  is  believed,  consists 
in  the  actual,  though  not  professed,  transfer  of  rate  regulation 
from  the  basis  of  the  police  power,  where  it  has  always  been 
held  to  rest,  to  the  basis  of  the  eminent  domain.  While  con- 
tinuing  to  insist  in  loords  that  rate  control  is  an  exercise_pf  the 
police  power,  the  Court  has  wt  fact  treated  it  as  if  it  were  a  phase 
of'^the  power  of  eminent  domain.  The  Court  has  ap^irently 
looked  upon  it  as  a  means  whereby  the  state  may  take  property 
(in  the  form  of  income)  for  public  use,  and  has  consequently 
subjected  it  to  the  ordinary  rules  of  eminent  domain,  requiring 
just  compensation  for  property  appropriated.  It  is  because  of 
this  change  of  base  that  the  Court  has  been  driven  to  the  dilemma 


JUDICIAL  RATE  REVIEW  625 

of  h(3lding  eitherthat  all  income  is  property,  which  practically 
denies  the  ancient  legislative  right  of  control,  or  else  that  none 
of  it  is  property,  and  hence  that  all  of  it  is  beyond  constitutional 
pTOtectlon,  which  the  judicial  mind  is  unwilling  to  concede.  From 
this  dilemma  our  jurists  have  extricated  themselves  by  advancino- 
the  extraordinary  idea  that  a  part  of  income  is  property  and  a 
part  is  not.  But  they  would  have  saved  themselves  from  get- 
ting into  the  dilemma,  and  so  would  have  spared  themselves  the 
necessity  of  resorting  to  this  untenable  fiction,  had  they  actually 
continued  to  regard  rate  control  in  the  light  of  their  own  repeated 
assertions,  as  a  phase  of  the  police  power.  For  viewed  as  a  part 
of  the  police  power,  rate  regulation  is,  of  course,  not  subject  to 
the  rules  applying  to  the  condemnation  of  property.  It  is  the 
exercise  of  an  entirely  different  sovereign  power,  subject  to  en- 
tirely different  rules  and  restraints.  If  the  court  should  really 
so  regard  it,  there  would  be  no  question  of  appropriation  or  com- 
pensation to  consider,  no  inquiry  as  to  the  effect  of  rates  on 
earnings  would  have  to  be  made,  and  hence  no  classification  of 
income. 

But,  it  may  be  objected,  though  rate  regulation  is  a  part  of 
the  police  power,  is  it  not  true  that  in  its  exercise  the  income 
of  the  railroad  may  be  decreased,  which  would  amount  to  a 
deprivation  of  property,  income  being  regarded  as  property? 
True ;  —  from  the  control  of  rates  many  consequences  may  flow, 
and  among  other  results,  the  income  of  a  company  may  be  re- 
duced. But  that  is  a  consequence  which  also  flows  from  other 
police  regulations  which  the  state  may  adopt.  Railroad  rate 
control  is  not  peculiar  in  that  regard.  Yet  no  one  thinks  of 
subjecting  other  police  regulations  to  the  rules  of  eminent 
domain.  Thus  the  legislature  may  pass  laws  requiring  railroads 
to  put  in  cattle  guards  at  highway  crossings,  or  to  equip  each  pas- 
senger car  with  an  ax,  saw,  and  hammer,  or  with  drinking  water, 
or  to  substitute,  within  a  given  time,  automatic  couplers  of  a 
certain  type  for  the  couplers  in  use.  Any  of  these  requirements 
would  necessitate  an  expenditure  of  money  and  consequently 
would  reduce  the  net  income  of  the  company  by  increasing  ex- 
penses while  the  improvements  were  being  installed.   In  effect, 


Clio  KA1L\\A^     IMJOIUJ'IMS 

if  owe  wishes  Id  think  of  it  in  this  way,  it  amounts  to  an  aj  )pro- 
priation  of  property  for  a  public  purpose.  A  portion  of  thoi-C-i- 
come,  instead  of  being  devoted  to  paying  operating  expense  B^  )r 
interest  on  bonds,  or  dividends  on  stock,  must  be  expendecbn^  a 
manner  required  for  the  benefit  of  the  public.  Thus  incoie^yj  is 
affected  just  as  truly  —  though  in  a  somewhat  different  way 
—  througli  these  measures  as  through  rate  control.  A  ra'droad 
company  may  be  deprived  of  income  just  as  truly  through /police 
regulations  requiring  an  expenditure  of  money  for  the-  public 
welfare  as  through  those  requiring  a  reduction  in  rates. ' 

Nevertheless  a  railroad  company  is  not  permitted  to-  object  to 
ordinary  p^olice  regulations  on  the  ground  tliat  its  "  Reasonable 
income  "  is  threatened.  A  case  can  be  imagined  whera  a  railroad 
could  show  that  its  existing  income  was  no  more  thai/i  reasonable, 
and  wdiere  the  courts  would  so  hold.  In  such  a  oa^se  to  enforce 
a  law  requiring  the  installation  of  new  couplers  Or  other  equip- 
ment would  so  increase  the  expenses  of  the  company  that  the 
income  Avould  no  longer  be  reasonable.  Its  existing  income  being 
just  barely  a  reasonable  one,  to  require  expenditures  from  it  for 
the  public  good  would  be  in  effect  to  deprive  the  company  of  a 
part  of  its  reasonable  income.  But  could  the  company  demand 
compensation  for  the  sum  so  taken?  Of  course  not.  In  pass- 
ing upon  police  regulations  a  court  does  not  consider  their  inci- 
dental effect  on  earnings.  It  makes  no  difference  whether  the 
road  can  earn  a  reasonable  income  under  them  or  not.  A  com- 
pany in  the  last  stages  of  insolvency  is  just  as  subject  to  them 
as  the  most  prosperous  of  roads.^ 

1  It  should  be  noted  that  the  validity  of  a  police  regulation  is  not  a  matter 
which  is  personal  to  certain  individuals  within  the  class  affected,  but  rather  is  a 
quality  of  the  regulation  itself.  A  factory  act  applying  to  factories  of  a  certain 
class  is  never  valid  as  to  some  and  void  as  to  others.  Its  validity  is  determined 
on  its  own  merits,  irrespective  of  its  financial  effect  on  certain  factories,  and  if 
it  is  held  to  be  a  valid  pxercise  of  the  police  power,  it  is  binding  on  all  the  persons 
coming  within  its  terms.  Yet  a  general  schedule  of  railroad  rates  may,  under 
the  present  judicial  doctrine,  be  held  void  as  to  one  road  but  binding  upon  another, 
perhaps  a  competing  line.  This  unfortunate  consequence  is,  of  course,  a  result 
of  bringing  into  rate  cases  the  rules  of  eminent  domain,  instead  of  judging  rates 
on  their  merits,  as  a  police  measure  designed  to  promote  the  public  welfare. 


JUDICIAL   if  ATE  EEVIEW  627 

In  short  the  state  is  permitted  through  police  regulation  to 
appropriate  earnings  for  the  public  benefit  without  any  obligation, 
under  the  Constitution,  to  provide  compensation.  But  the  police 
power  differs  from  eminent  domain  in  that  the  appropriation  of 
property  is  not  direct,  but  is  incidental  and  resultant.  The 
direct  and  immediate  effect  of  a  police  regulation  is  always  the 
establishment  of  some  condition  or  method  or  other  regulation 
which  the  public  safety  or  welfare  or  comfort  demands.  And  its 
indirect  or  consequent  effect  on  income  is  not  regarded  as  a 
deprivation  of  property  such  as  is  contemplated  in  the  law  of 
eminent  domain.  There  is  no  valid  reason  why  an  exception  to 
this  rule  should  be  made  in  the  case  of  that  form  of  police  regu- 
lation called  rate  control.  It  is  a  perfectly  legitimate  exercise  of 
the  police  power  and  should  certainly  be  treated  in  the  same 
way  as  other  police  regulations,  —  at  least  it  should  not  be 
subjected  to  more  stringent  restraints. 

Two  objections  to  this  view  of  the  case  might  conceivably  be 
raised,  neither  of  which,  however,  it  is  believed,  is  well  taken. 
In  the  first  place  it  may  be  said  that  there  is  a  difference  between 
rate  control  and  other  forms  of  police  regulation,  in  that  the 
latter  are  of  real  benefit  to  the  company.  The  railroad  is  in  pos- 
session of  equipment  which  proves  of  decided  advantage  to  it. 
For  example,  its  automatic  couplers  and  cattle  guards  decrease 
accidents,  with  their  losses  of  property  and  subsequent  damage 
suits,  while  passenger  car  equipment  encourages  patronage  by 
the  greater  security  and  comfort  offered  to  travelers.  But  two 
replies  may  be  made  to  this  objection.  One  is  that  public  regu- 
lation of  rates  also  is  of  advantage  to  the  company.  It  docs  away 
with  lawsuits  to  recover  damages  for  overcharge,  for  a  company 
is  never  guilty  of  extortion  so  long  as  it  keeps  within  the  maxi- 
mum fixed  by  the  state.  Moreover,  it  tends  to  increase  the  popu- 
lar favor  in  which  the  roads  are  held  and  to  encourage  traffic. 
The  development  of  industry  resulting  from  efficient  pulilic 
regulation  is  in  itself  of  great  advantage  to  the  roads.  But  while 
this  answer  to  the  objection  can  be  made,  a  better  one,  and  one 
fully  sufficient,  is  this :  that  the  benefit  which  a  police  regula- 
tion confers  on  the  road  is  not  the  reason  why  tlie  courts  do  not 


():>S  KAILWAV    PliOl^LEMS 

subject  the  regulation  to  the  hivv  of  eminent  domain.  The  reason 
is  simply  that  it  is  not  an  exercise  of  that  power.  The  second 
possible  objection  is  that  a  regulation  of  rates  necessarily  affects 
income  ;  but  that  in  the  case  of  other  police  laws  the  company 
may  recoup  whatever  expense  is  involved,  by  raising  its  rates 
and  so  increasing  its  earnings.  The  reply  to  this  objection  is 
tliat  a  company  is  not  able  thus  to  manipulate  its  earnings.  It 
is  at  many  points  subject  to  competition,  and  so  is  not,  com- 
mercially speaking,  free  to  raise  its  rates.  And  an  increase  of 
rates  at  any  point  might  simply  have  the  effect  of  decreasing 
traffic,  so  that  earnings  would  be  but  slightly  increased,  if  at  all. 
^Moreover,  it  may  be  that  the  state  has  prescribed  rates  and  they 
are  in  force,  so  that  the  company  is  without  legal  power  to  raise 
its  rates,  and  thus  without  the  means  wherewith  even  to  try  to 
recoup  the  expense  forced  upon  it.  Even  here  the  attitude  of 
the  courts  is  just  the  same.  A  railroad  cannot  claim  exemption 
from  police  regulations  because  it  is  unable  to  make  up  the 
expense  through  the  manipulation  of  its  rates. 

We  conclude,  therefore,  that  since  rate  control  is  an  exercise 
of  the  police  power  and  not  of  the  eminent  domain,  it  should 
not  be  subjected  to  the  law  of  eminent  domain;  that  accordingly 
the  test  of  its  validity  should  not  be,  as  is  now  held  by  the  courts, 
its  effect  on  the  income  of  the  company. 

Does  this  mean  that  the  legislative  power  of  rate  control  is 
absolute  and  without  limit  ?  No.  It  simply  means  that  the  legis- 
lature is  Subject  to  the  same  limitations  that  it  is  in  exercising 
other  forms  of  the  police  power.  In  other  words,  the  validity 
of  rate  control  is  to  be  determined  just  as  the  validity  of  other 
police  regulations  is  determmed.  The  same  test  that  is  applied 
to  them  should  be  applied  to  it.  The  question  upon  which  the 
validity  of  a  cattle-guard,  or  automatic-coupler,  or  drinking-water 
law  hangs  —  or,  for  that  matter,  a  factory  act,  or  sanitary  legis- 
lation, or  an  inspection  law  —  is  whether  a  sufficient  public 
interest  demands  the  law.  Upon  that  same  question  should  the 
validity  of  rate  regulation  depend.  It  should  be  a  quesJion^of 
public  welfare.  And  therefore  just  as  a  court  sometimes  sets 
aside  a  police  law  because  its  enactment  is  not  justified  by  the 


JUDICIAL   KATE  REVIEW  629 

public  advantage  to  be  secured  through  its  operation,  so  rates 
made  hy  public  authority  might  be  set  aside  on  the  same  grounds. 
But  this  is  vastly  different  from  saying  that  their  effect  on  earn- 
ings should  be  the  conclusive  test  in  determining  their  validity. ^ 
If  the  view  of  the  matter  here  suggested  were  to  command 
acceptance,  judicial  review  would  be  transformed.  Instead  of 
being  what  it  now  is,  it  would  become  a  judicial  investigation 
designed  to  apply  to  rate  control  the  same  test  which  is  judi- 
cially applied  to  other  police  regulations.  And  beyond  a  doubt 
this  would  result  in  giving  to  legislatures  and  commissions  much 
greater  freedom  of  action  in  rate  matters  than  they  enjoy  under 
the  present  doctrine.  The  full  measure  of  their  proper  authority, 
of  which  they  have  been  largely  deprived  by  the  courts,  would 
be  restored  to  them.  And  that  it  is  their  proper  authority  is 
made  more  evident  by  the  following  consideration.  A  state 
may,  of  cou'rse,  and  frequently  does  employ  tlie  police  power  to 
control  private  persons  in  matters  of  private  concern.  In  such 
cases,  as  has  been  said,  the  regulation  stands  or  falls  according 
to  whether  the  public  interest,  welfare,  safety,  health,  morals,  com- 
fort, or,  sometimes,  even  convenience,  demand  it.  If  that  is  the 
only  limitation  placed  upon  the  legislature  in  its  control  of  private 
persons  in  their  management  of  private  matters,  surely  no  more 
stringent  limitation  should  be  placed  on  it  in  its  regulation  of 
the  management  of  public  business  by  quasi-public  corporations. 
Indeed  there  is  evidently  much  ground  on  which  to  contend  that 
legislative  authority  should  be  even  more  extensive  over  public 
than  over  private  business.  It  would  certainly  seem  that  the 
government  should  have  more  control  over  property  devoted  to 
public  use  than  over  property  retained  for  purely  private  use.  It 
is  not  an  immoderate  suggestion,  therefore,  that  the  authority  in 
the  first  case  should  be  barely  equal  with  that  in  the  second. 

1  Of  course  it  is  perfectly  conceivable  that  the  effect  of  rates  on  earnings  might 
be  one  of  the  points  considered  by  a  court.  It  might  be  made  a  question  whether 
the  public  interest  demanded  certain  rates,  if  they  reduced  income  so  much  tliat 
bare  operating  expenses  could  not  be  paid,  for  in  that  case  the  road  might  have 
to  suspend  operation.  But  even  if  the  effect  of  rates  were  so  considered,  the 
limitation  on  legislative  action  would  be  decidedly  different  from  what  it  is  at 
the  present  time. 


(k)!)  KALL\\A^     PKor.LEMS 

'rii;it  a  broader  governniciital  })o\ver  over  rates  would  render 
more  precarious  the  earnings  from  railroad  properties  is  evident, 
but  that,  of  course,  is  simply  one  of  the  hazards  which  one  nnist 
contemplate  in  going  beyond  the  boundaries  of  private  enter- 
prise, into  the  uncertain  field  of  public  activities.  A  forcible 
judicial  expression  of  this  idea  may  be  found  in  the  words  of 
Mr.  Justice  Brewer,  uttered  ohiter,  in  Cotting  v.  Kansas  City 
Stock  Yards  Company}  In  entering  a  public  business,  said  he, 
a  person  "  expresses  his  willingness  to  do  the  work  of  the  state, 
aware  that  the  state  in  the  discharge  of  its  public  duties  is  not 
guided  solely  by  a  question  of  profit.  It  may  rightfully  determine 
that  the  particular  service  is  of  such  importance  to  the  public 
that  it  may  be  conducted  at  a  pecuniary  loss,  having  in  view  a 
larger  general  interest.  At  any  rate,  it  does  not  perform  its 
services  with  the  single  idea  of  profit.  Its  thought  is  the  gen- 
eral public  welfare.  ...  Is  there  not  force  in  the  suggestion 
that  as  the  state  may  do  the  work  without  profit,  if  he  volun- 
tarily undertakes  to  act  for  the  state  he  must  submit  to  a  like 
determination  as  to  the  paramount  interests  of  the  public  ?  " 

In  this  connection  it  is  instructive  to  notice  that  in  other 
ways  persons  embarking  in  a  public  business  must  assume  the 
risk  of  losing  much  or  even  all  of  their  investments.  Such  dan- 
gers exist,  —  have  been  permitted  by  the  courts  to  exist  even 
since  the  adoption  of  the  Fourteenth  Amendment.  Thus,  it  has 
been  held  that  a  state  may  grant  a  franchise  to  one  railroad  to 
parallel  an  already  existing  road.  The  value  of  the  older  prop- 
erty may  be  impaired  by  competition  with  the  new  road,  yet 
it  is  held  that  the  owners  have  no  vested  rights  which  can  pre- 
vent its  construction  and  operation.  So  also  the  value  of  a 
turnpike  may  be  practically  annihilated  by  the  state  through  a 
franchise  permitting  a  parallel  railroad.  Yet  it  has  been  held 
that  the  Fourteenth  Amendment  does  not  command  just  com- 
pensation in  any  sense  which  would  require  the  state  to  compen- 
sate the  turnpike  company  for  the  property  so  taken. ^    When 

1  18.3  U.  S.  93. 

2  For  further  illustrations,  see  Cooley's  Principles  of  Constitutional  Law, 
3d  ed.,  p.  370. 


JUDICIAL  KATE  REVIEW  631 

the  public  welfare  demands  more  efficient  means  of  transporta- 
tion, the  owner-s  of  existing  roads  must  expect  to  suffer  ;  and 
the  courts,  aside  from  declining  to  relieve  them,  have  not  even 
claimed  that  any  one  but  the  legislature  should  be  the  final 
judge  of  the  public  necessity  of  the  new  improvement.  A  power 
such  as  this  is  one  which  properly  belongs  to  the  state  to  enable 
it  to  deal  with  property  devoted  to  a  public  use  in  a  manner 
conducive  to  the  welfare  of  the  community,  and  one  of  which 
the  state  has  been  deprived,  so  far  as  rate  regulation  is  con- 
cerned by  the  doctrine  of  judicial  review. 

We  thus  conclude  the  discussion  of  our  first  reason  why  the 
doctrine  of  judicial  review  has  seriously  impaired  the  legislative 
power  to  reduce  rates.  It  has  fixed  a  limit  beyond  which  reduc- 
tion cannot  be  carried,  and  that  limit  is  an  improper  one.  By 
basing  rate  regulation  on  eminent  domain  rather  than  on  the 
police  power,  it  has  prevented  the  legislatures  and  commissions 
from  exercising  the  authority  that  is  their  right,  and  has  thus 
suTyjHTted  them  to  a  serious  restraint. 

II.  But  this  is  not  the  only  reason  why  the  judicial  doctrine 
has  impaired  the  power  of  the  state  to  reduce  rates.  The  pres- 
ent judicial  limit  on  legislative  action  is,  as  we  have  seen,  the 
point  of  "  reasonable  income."  ]3utwhile  the  Court  has  repeat- 
edly_dej3lared_that  this  is  the  proper  limit,  it  h^sTiievertheless, 
adopted  principles  and  methods  in  the  trial  of  rate  cases  which 
do  not  permit  a  state  to  fix  rates  so  as  to  reduce  income  even  to 
the  point  of  reasonableness.  In  other  words,  the  Court  employs 
principles  and  methods  which  unduly  favor  the  railroad  and 
unduly  restrict  the  state  ;  and  thus  the  legislature  cannot  exer- 
cise even  the  limited  authority  which  the  Court  has  in  general 
terms  allowed  it.  Rates  may  be  made  which  will  not  actually 
reduce  the  income  below  the  point  of  reasonableness,  yet  the 
Court  may  hold  that  they  will  —  so  erroneous  is  the  way  in 
which  it  detei'uiines  that  point.  In  the  further  elucidation  of 
this  contention,  let  us  consider  tlie  methods  by  which  the  Court 
determines  the  effect  of  rates  on  earnings.  We  shall  see  that 
those  methods  inevitably  make  that  effect  appear  more  favor- 
able to  the  railroads  than  is  really  the  case. 


(\:\'2  KAILWAV    PPvOin.EMS 

As  \\L'  have  already  seeu,^  the  Court  begins  with  the  rule  that 
the  effect  of  rates  upon  earnings  shall  be  determined  on  the 
basis  oi  past  business.  That  is,  the  judicial  estimate  ol'  earning 
capacity  of  the  road  under  the  new  rates  is  arrived  at  on  the 
assumption  that  the  rates  will  neither  increase  nor  decrease  the 
traffic,  but  that  the  traffic  will  remain  the  same  that  it  was  for 
a  period  of  time  prior  to  the  establishment  of  the  rates. 

Ex-traonlinary  as  this  assumption  is,  it  is  one  which,  as  we 
have  seen  from  our  review  of  the  cases,  the  courts  have  repeat- 
edly I'ecognized  as  legitimate.  It  need  hardly  be  said  that  in 
this  matter  the  courts  have  failed  to  take  into  consideration  one 
af  the  most  fundamental  charactistics  of  the  railroad  business. 
For  it  is  a  matter  of  general  knowledge  that,  usually,  a  reduc- 
tion in  rates  results  in  an  increase  of  business.  At  this  stage  of 
the  railroad  controversy  no  argument  is  needed  to  prove  this 
contention,  nothing  beyond  a  mere  appeal  to  those  general  facts 
of  which  all  are  cognizant.  Curiously  enough  it  was  even  ad- 
mitted, with  innocent  frankness,  by  Mr.  Carter,  of  counsel  for 
the  railroads  in  Smyth  v.  Ames.  In  arguing  that  there  are 
sufficient  protections  against  the  danger  of  extortion,  he  said, 
"  Moderate  charges  yield  more  profit  by  the  greatly  increased 
business  they  draw.  A  sound  policy,  perfectly  well  known  to 
railroad  managers,  advises  them  that  it  is  better  to  tempt  and 
draw  out  a  large  traffic  by  low  prices  than  to  try  to  make  a 
large  profit  on  a  small  business."  ^ 

In  spite  of  this  universally  accepted  fact,  however,  the  courts 
have  definitely  settled  that  the  effect  of  lower  rates  may  prop- 
erly, for  judicial  purposes,  be  determined  on  the  assumption 
that  increase  of  business  will  not  result  from  the  decrease  in 
rates.  It  must,  of  course,  be  admitted  that  compensating  cir- 
cumstances may  occasionally  prevent  an  increase  in  traffic,  but 
such  an  occurrence  is  out  of  the  ordinary.  The  rule  remains 
that  a  reduction  in  rates,  other  conditions  remaining  the  same, 
always  tends  to  augment  the  volume  of  business.  For  the 
courts,  then,  to  proceed  upon  the  assumption  which  iti-^does, 
is  to  unduly  favor  the  railroads.  It  enables  them  to  make  a 
1  r.  58  of  original  monograph.  ^  169  U.  S.  506. 


JUDICIAL   RATE   REVIEW  633 

stronger  case  than  they  could  were  the  correct  assumption  to 
be  made.  Upon  this  principle  the  judicial  view  must  always 
be  that  rates  will  more  seriously  affect  the  earnings  of  the  com- 
panies than  would  be  true  in  nineteen  cases  out  of  twenty.  As 
a  matter  of  fact,  to  put  the  rates  in  operation  might  not  reduce 
either  gross  or  net  earnings  at  all,  or  might  reduce  them  but 
slightly.  Yet,  in  contemplation  of  the  courts,  earnings  would  be 
diminished  exactly  in  proportion  to  the  reduction  in  the  rates. 

Of  course  it  may  be  iirged  that  this  is  the  only  definite  test 
which  the  courts  can  apply ;  that  to  attempt  to  estimate  the 
probable  increase  in  traffic  resulting  from  a  decrease  in  rates 
would  involve  the  courts  in  speculations  in  which  they  could 
never  have  the  guidance  of  reliable  principles.^  Let  this  be 
granted  as  true  ;  let  it  be  conceded  that  the  courts  can  find  no 
other  test.  Nevertheless  that  fact  does  not  make  the  test  a  good 
one,  nor  one  adequate  to  the  needs  of  rate  cases,  nor  does  it 
affect  the  fact  that  the  test  gives  to  the  railroads  an  undue 
advantage  as  against  the  public. 

No  more  favorable  is  the  view  which  must  be  taken  of  the 
next  step  in  the  procedure  of  the  Court.  After  declaring  that 
the  effect  of  rates  upon  earnings  must  be  decided  on  the  basis 
of  past  business,  the  Court  goes  on  to  hold  that  that  effect  must 
further  be  determined  by  applying  to  past  earnings  the  per- 
centage of  reduction  in  the  rates.^ 

If  the  effect  of  the  new  rates  upon  earnings  were  to  be  deter- 
mined at  all  on  the  basis  of  past  business,  it  would  seem  that 
the  correct  method  of  arriving  at  the  result  would  be  to  apply 
freight  rates  to  past  tonnage,  and  passenger  rates  to  past  pas- 
senger traffic.  This  would  give  the  maximum  earnings  which 
could  be  secured  by  the  railroad  under  the  new  rates,  on  tlie 
condition,  assumed  by  the  courts,  that  traffic  would  continue 

1  It  is  said  that  it  cannot  be  determined  in  advance  what  the  effect  of  the 
reduction  of  rates  will  be.  Oftentimes  it  increases  business,  and  who  can  say 
that  it  will  not  in  the  present  cases  so  increase  the  volume  of  business  as  to 
make  it  remunerative,  even  more  than  at  present  ?  But  speculations  as  to  the 
future  are  not  guides  for  judicial  actions  ;  courts  determine  rights  upon  existing 
facts.  —  Mr.  Justice  Brewer  in  Chicago,  etc.,  liy.  Co.  v.  Bey,  36  Fed.  Hep.  881. 

2  P.  58  of  original  monograph. 


umlumged.  Instead  of  tliis  method,  however,  the  courts  deter- 
mhio  the  pereentage  of  ivductit)U  made  by  the  new  rates  in  the 
rates  in  foive,  and  then  assume  that  future  earnings  will  equal 
past  earnings  reduced  in  the  same  proportit)n.  For  example  : 
Sup[)i>se  that  past  earnings  were  fl, 000,000,  and  that  the 
new  rates  are  80  per  cent  of  the  old  rates.  It  is  assumed  by 
the  courts  that  earning  capacity  under  the  new  rates  will  be 
$800,000. 

Now,  here,  again,  is  an  assumption  which  gives  the  railroads 
a  distinct  advantage  in  suits  involving  rates.  For  the  basis  of 
the  whole  process  is  the  reducti(m  made  by  the  new  rates  in  the 
old  schedules.  Yet  the  old  schedules,  of  course,  contain  only 
the  nonn)ial  rates  establislied  by  the  railroad.  As  a  matter  of 
fact,  in  very  many  cases,  the  actual  lates  charged  are  lower  than 
those  named  in  the  schedules.  Discriminations,  rebates,  draw- 
backs, preferential  advantages,  all  awarded,  usually,  under  the 
veil  of  secrecy,  are  not  yet,  unfortunately,  things  of  the  past. 
The  past  earnings  of  the  company,  therefore,  have  been  derived, 
not  by  charging  the  rates  fixed  in  the  schedules,  but  by  charg- 
ing rates  which  average  considerably  less  than  those  scheduled. 
When  the  courts,  then,  compare  the  new  rates  with  the  old 
nominal  ones,  they  discover  a  percentage  of  reduction  greater 
than  the  percentage  of  reduction  made  by  the  new  rates  in  the 
old  actual  ones.  The  assumption,  therefore,  that  the  earning 
capacity  of  the  road  will  be  reduced  in  proportion  to  the  greater 
percentage,  is  clearly  wrong.  It  makes  the  company's  criminal 
practices  a  source  of  advantage  to  it,  and  of  disadvantage  to 
the  public,  in  the  trial  of  rate  cases. 

For  example,  let  us  make  the  same  assumption,  made  above, 
that  past  earnings  were  $1,000,000,  and  that  the  new  rates  are 
80  per«cent  of  the  old  nominal  rates.  In  such  a  case  the  courts 
hold  that  the  maximum  earning  capacity  of  the  road  under  the 
new  rates  will  be  $800,000. 

Suppose  that  the  nominal  rate  per  mile  was  $.01 ;  the  new 
rate  is,  then,  $.008.  Now,  it  is  evident,  from  the  merest  knowl- 
edge of  railroad  practices,  that  the  earnings  of  $1,000,000  were 
not  secured  by  charging  an  average  of  $.01  for  each  of  1,000,000 


JUDICIAL  RATE  REVIEW  635 

ton  miles.  As  a  matter  of  fact,  the  actual  average  rate  charged 
was  less  then  i.Ol.  It  might  have  been  ^.009,  or  $.008,  or  -1.007, 
or  even  less.  But  in  order  to  deal  generously  with  the  railroad, 
let  us  assume  for  the  moment  that  it  was  as  high  as  8.009.  Then, 
the  earnings  of  $1,000,000  were  secured  by  charging  $.009  for 
each  of  111,111,111  ton  miles.  The  actual  traffic,  therefore, 
being  111,111,111  ton  miles,  to  put  in  force  a  rate  of  $.008  would 
give  an  earning  capacity  of  $888,888.88.  This,  indeed,  is  less 
than  the  former  earnings,  but,  on  the  other  hand,  it  is  over  $88,000 
greater  than  the  earning  capacity  which  the  Court  assumes  the 
railroad  would  possess  under  an  $.008  rate. 

Now  let  us  alter  oui*  last  assumption,  and  suppose  that  the 
actual  average  rate  which  earned  the  receipts  of  $1,000,000  was 
low,  say  $.007.  Then  the  $1,000,000  were  earned  by  charging 
$.007  for  each  of  112,857,1-12  ton  miles.  But  to  apply  to  that  ton- 
nage a  rate  of  $.008  would  give  an  earning  capacity  of  $1,142,857. 
This  is  greater  by  $142,857  than  the  old  earnings,  and  is  $342,857 
greater  than  the  earning  capacity  reached  by  the  processes  of 
the  Court. 

Thus  it  appears  that  the  earning  cap^acity  determined  by  the 
courts  is  always  less  than  that  which  the  railroad  will  actually 
possess  under  the  new  rates.  Furthermore,  it  appears  that  the 
earning  capacity  of  the  road  under  the  new  rates,  if  it  will  abstain 
from  discrimination,  may  even  exceed  the  actual  amount  of  earn- 
ings received  under  the  old  rates. 

This  practice  of  the  courts,  then,  is  always  unfair  to  the  new 
rates,  since  it  makes  out  their  effect  upon  earning  capacity  to 
be  more  disastrous  than  it  will  be,  except  in  the  purely  hj^pothet- 
ical  case  of  a  road  which  has  not  deviated  from  its  nominal  rates. 
As  an  item  in  a  test  of  reasonableness,  it  is,  therefore,  clearly 
inadequate,  and  unduly  favorable  to  the  railroads.  Under  this 
practice,  the  more  flagrant  a  company's  violations  are  of  the  laws 
against  discriminations,  the  more  complete  is  its  immunity  from 
public  regulation  of  its  rates.  In  any  event,  a  railroad  is  able 
to  make  out  before  the  Court  a  stronger  case  than  it  has  in  fact. 

True,  in  the  Reagan  cases,  it  was  laid  down  that  a  railroad's 
right  to  pi'ofitable  couipensation  is  limited,  inter  alia,  when  it  has 


( i :U;  K  A 1 L  W  A  V  !•  lU )BLEM  S 

iiululovil  in  "unjust  diserinun;iti*)ns  i-esulting  in  geucu'al  loss."  ^ 
Acconlinoly  the  way  is  opened  for  the  state  to  attempt  to  prove 
the  unjust  discriminations  of  which  the  road  has  been  guilty. 
But  satisfactory  evidence  upon  such  matters  is,  of  course,  almost 
impossible  to  get ;  and  even  were  it  secured,  it  is  not  certain  to 
what  extent  and  in  what  way  the  courts  would  make  use  of  it. 
So  far  as  the  question  of  the  effect  of  rates  upon  earning  capacity 
is  concerned,  no  fair  or  correct  result  can  be  secured  by  the  method 
now  employed  by  the  courts.  As  said  above,  if  past  business  is 
to  be  the  basis  of  the  calculation  at  all,  the  correct  method  would 
seem  to  be  the  application  of  the  new  rates  to  past  tonnage,  or 
past  passenger  traffic.  Without  discussing  this  point  farther, 
however,  it  is  sufficient  for  our  present  purposes  to  note  that 
the  method  now  employed  by  the  Court  may  often  result  in  the 
suspension  of  rates  which,  while  looking  toward  the  public 
welfare,  are  not  really  calculated  to  impair  the  earning  capacity 
of  the  railroads,  to  say  nothing  of  reducing  it  to  the  point  of 
"  reasonable  returns." 

III.  Beyond  this,  however,  it  may  be  urged  that  the  judicial 
conception  of  "  reasonable  income  "  is  not  adequate.  At  least  it 
may  fairly  be  said  that  the  principles  which  the  Court  has  laid 
down  as  the  controllinof  considerations  in  determininor  reason- 
ableness  of  income  have  so  far  proven  unduly  favorable  to  the 
railroads,  and  have  not,  as  yet,  given  proper  expression  to  the 
interests  of  the  public.  Let  us  recall  what  these  principles  are. 
Briefly  stated,  the  Court  has  held^  that  a  railroad's  earnings  must 
be  sufficient,  in  general,  to  pay  all  expenses  including  interest  on 
bonds,  and  yield  a  reasonable  dividend  upon  stock,  but  that  the 
reasonableness  of  the  dividend,  and,  indeed,  a  railroad's  right  to 
any  dividend  at  all,  is  dependent  upon  a  large  number  of  con- 
siderations. These  considerations,  we  have  also  seen,  may  be 
grouped  into  four  classes  —  one  pertaining  to  the  base  upon 
which  the  rate  of  profit  shall  be  reckoned,  the  second  to  the 
management  of  the  road,  another  to  the  rights  of  the  public, 
and  the  fourth  to  the  industrial  condition  of  the  community.^ 
The  enunciation  of  these  limitations  upon  a  railroad's  right  to 

1  P.  74  of  original  moiiograph.  -  Ibid.,  p.  70.  ^  Ibid.,  p.  72. 


JUDICIAL   RATE   REVIEW  6P)7 

compensation  is  a  most  interesting  feature  of  rate  cases.  At 
first  blush  it  might  seem  that  they  are  admirably  calculated  to 
aid  in  restoring  the  proper  balance  between  the  public  and  pri- 
vate interests.  Yet  it  cannot  escape  observation  that  almost  all 
of  them  are  simply  obiter  dicta,  and  investigation  shows  that 
the  Court  has  often  forgotten  them,  either  in  determining  pro- 
cedure or  in  deciding  special  cases. 

A  few  instances  of  this  kind  will  serve  both  to  explain  and 
to  enforce  the  point.  In  the  Reagan  cases  is  laid  down  the  doc- 
trine that  the  failure  of  rates  to  yield  profitable  compensation  is 
not  conclusive  of  reasonableness  when,  inter  alia,  the  railroad  has 
indulged  in  unjust  discriminations  resulting  in  general  loss.  And 
yet,  as  has  just  been  seen,  the  Court  has  employed  a  method  of 
determining  the  effect  of  new  rates,  which  enables  a  railroad  to 
take  refuge  under  the  very  shelter  of  its  own  discriminations, 
and  from  that  safe  retreat,  protected  by  the  strong  bulwark  of 
the  law,  to  defy  legislatures  and  commissions.  Again,  the  Reagan 
cases  also  recognized  a  limitation  when  a  road  was  unwisely 
built,  in  districts  where  there  is  not  sufficient  business  to  sus- 
tain a  road.  Yet  such  was  the  case  with  almost  all,  if  not  all, 
of  the  roads  involved  in  those  very  cases.  The  International  & 
Great  Northern  had  never  been  able  to  pay  the  interest  on  its 
bonds,  and  had  been  in  a  receiver's  hands  for  three  years.  Of 
two  other  roads  the  Court  speaks  as  follows : 

The  St.  Louis  Southwestern  Railway  Company  is  called  by  counsel  for 
defendants,  in  their  brief,  "  a  reorganized  bankrupt  concern."  It  would 
seem  to  be  a  railroad  ichich  loas  unwisely  built,  and  one  tchose  operating  expenses 
have  always  exceeded  its  earnings.  Counsel  says  that  "  it  is  familiarly  known 
as  a  '  teazer,'  and,  if  it  ever  passes  beyond  this  interesting  but  unprofit- 
able stage,  even  its  friends  will  be  surprised."  We  are  not  advised  and  we 
can  hardly  be  expected  to  take  judicial  notice  of  what  is  meant  by  the  term 
"  teazer,"  but  it  is  clearly  disclosed  by  the  record  that  this  was  an  unprofitable 
road.  .  .  .  The  Tyler  Southwestern  Railway  Company  has  a  short  road  of 
ninety  miles,  and  also  appears  to  be  a  "  reorganized  bankrupt  concern,"  and 
one  whose  road  has  been  operated  with  constant  loss.^ 

Here  are  cases  which  clearly,  by  the  admission  of  the  Court, 
come  under  the  general  limitation  expressed  in  the  body  of  the 

1  154  U.  S.  403. 


0:}S  i;ail\\a\    tkohlems 

opinion.  Yet  the  limitation  was  entirely  ignored.  After  making 
the  statement  quoted  above,  the  Court  continued,  ^  it  will  not 
do  to  hold  that,  because  the  roads  have  been  operating  in  the 
past  at  a  loss  to  the  owners,  it  is  just  and  i-easonable  to  so  reduce 
the  rates  as  to  increase  the  amount  of  that  loss."  Here,  then, 
one  who  has  read,  a  few  pages  back  in  the  opinion,  the  general 
rule  laid  down  by  the  Court,  finds  the  hopes  aroused  by  it  most 
rudely  dashed. 

Further  evidence  may  be  found  of  the  Court's  tendency  to 
ignore  the  limitations  upon  a  railroad's  right  to  profitable  rates. 
It  is  worth  while  mentioning  that  the  Court  in  the  Reagan  cases 
specifically  denied  two  claims  which  were  allowed  in  general 
terms  in  later  cases.  The  Covington  case  limits  the  railroad's 
right  when  competition  of  parallel  lines  so  diminishes  business 
as  to  make  profitable  rates  exorbitant,  and  the  last  Minnesota 
case  further  limits  that  right  when  the  industrial  condition  of 
the  country  is  such  that  profitable  rates  would  be  exorbitant. 
Yet  in  the  Reagan  cases  the  Attorney-General  showed  that  there 
were  four  lines  in  competition  with  the  International  &  Great 
Northern,  reducing  its  share  of  the  traffic ;  alleged  that  there 
had  recently  been  a  commercial  depression ;  and  offered  evidence 
to  show  that  the  price  of  products  was  so  low  that  rates  would 
have  to  be  lower  than  those  charged  by  the  railroads  in  order 
to  permit  the  farmers  to  market  their  produce  with  any  profit. 
All  this  was  not  gladly  received  by  the  Court,  as  tending  to 
support  the  rates  which  are  "  presumed  to  be  reasonable."  On 
the  other  hand  it  was  summarily  dismissed,  and  given  no  weight 
whatever  in  the  case.  We  are  accordingly  left  in  grave  doubt 
as  to  whether  the  Court  meant  much  if  anything  by  its  later 
dicta  in  the  Covington  and  the  last  Minnesota  cases.  At  any 
rate,  it  is  evident  that  the  play  of  the  Court's  sympath}^  for  indi- 
vidual as  opposed  to  public  rights,  operates  to  seriously  limit  the 
limitations,  as  it  were,  which  it  has  recognized  upon  the  rights 
of  the  railroads.  The  view  of  the  railroad  industry  which  has 
been  taken  by  the  Court  since  the  Granger  cases  requires  the 
limitations  to  be  stated ;  but  the  predilections  of  the  judges  cre- 
ate a  tendency  to  disregard  them.    As  statesmen,  or  publicists, 


I 


JUDICIAL   RATE  REVIEW  639 

the  judges  might  recognize  the  full  force  and  importance  of  those 
limitations  ;  but  as  lawyers  or  judges,  they  almost  inevitably 
forget  them. 

It  is  true  that  as  yet  the  Court  has  not  been  put  to  a  severe 
test,  and  consequently  it  is  not  clear  to  just  what  extent  it  will 
go.  For,  up  to  the  present  time,  counsel  for  the  states  have 
shown  comparatively  slight  disposition  to  urge  upon  the  Court 
the  limitations  it  has  recognized,  or  to  introduce  evidence  in 
such  matters.  The  Court  by  its  repeated  declai'ation  and  affir- 
mation of  its  dicta,  has  offered  an  opportunity  the  significance  of 
which  has  apparently  not  been  fully  appreciated  by  the  repre- 
sentatives of  the  public.  But  the  treatment  which  those  dicta 
have  received  in  the  cases  where  they  have  been  urged,  as  we 
have  just  seen,  forbids  any  very  sanguine  hope  that  they  hold 
much  promise  of  better  things  for  public  control. 

But  it  is  not  only  because  the  Court  tends  to  ignore  in  special 
cases  the^  rules  it  has  laid  down  in  general  terms,  that  they  are 
not  available  for  the  cause  of  the  public  welfare.  A  further 
reason  is  that  many  of  the  limitations  upon  the  rights  of  the 
railroads  are  so  vague  in  character,  and  involve  considerations 
so  difficult  to  establish,  that  the  public  can  derive  little  advan- 
tage from  them.  One  illustration  of  this  fact  is  to  be  found  in 
the  limitation  which  is  recognized  to  exist  when  the  manage- 
ment of  the  road  has  not  been  prudent  and  honest.  But  how 
difficult  must  it  always  be  for  state  officers  to  secure  satisfac- 
tory evidence  upon  such  a  point !  The  secrecy  which  enshrouds 
many  railroad  operations  and  the  possibility  of  manipulating 
accounts  make  difficult  even  the  discovery  of  imprudence  and 
dishonesty,  to  say  nothing  of  securing  evidence  which  will  be 
satisfactory  at  law. 

Again,  the  courts  have,  in  general  terms,  given  recognition 
to  the  rights  of  the  public.  In  the  Gill  case  the  Court  was 
hesitant  to  declare  rates  unreasonable  when,  among  other  things, 
the  claims  of  the  railroad  were  admitted  in  the  demurrer  of  a 
party  who  in  no  adequate  sense  represented  the  public.  In  the 
Reagan  cases  it  was  said  that  the  right  of  the  road  to  compen- 
sation is  limited,  among  other  things,  by  "  matters  affecting  the 


(MO  UAll.WAV    J'Hor.LEMS 

riglits  oi  the  community  in  wliu-li  the  road  is  built."  ^  And  in 
the  Coviny^ton  and  Smyth  cases,  it  was  stated  that  the  riglits  of 
the  })ublie  are  not  to  he  ignored,  that  rates  must  not  be  more 
than  the  services  are  worth  to  the  public,  that,  in  short,  rates 
must  be  just  to  the  public  as  well  as  to  the  railroad.^  But  what 
are  the  '^  rights  of  the  comnuuiity,"  or  the  "  rights  of  the  pub- 
lic," and  how  are  they  to  be  established?  How  is  it  to  be 
determined  what  a  railroad's  services  are  worth  to  the  public  ? 
How,  indeed,  is  it  to  be  discovered  what  rate  is  just  to  the 
public  as  well  as  to  the  railroad  ?  And,  when  the  interests  of 
the  public  and  of  the  railroad  clash,  which  is  to  prevail?  It 
need  hardly  be  stated,  in  view  of  the  preceding  discussion,  what 
the  coloring  is  which  must  necessarily  prevail  in  the  Court's 
answers  to  these  questions.  The  rights  of  the  public  are  indeed 
diHicult  to  establish.  Generally  speaking,  the  public  has  rights, 
which  must  not  be  invaded  by  the  railroads.  But  specifically, 
what  rights  ?  To  be  exempt  from  the  high  rates  necessary  to 
compensate  a  railroad  for  losses  due  to  its  discriminations,  or 
necessary  to  make  profitable  a  road  unwisely  built,  or  necessary 
to  sustain  as  many  competing  roads  as  may  chance  to  divide 
the  traffic?  We  have  seen  what  answers  the  Court  has  given 
to  these  questions.  The  vague  "  rights  "  of  the  public  have  van- 
ished with  the  appearance  of  a  practical  test. 

But  there  is  still  another  "  limitation  "  upon  the  right  of  the 
railroad  to  compensation,  namely,  the  industrial  condition  of 
the  community,  which  is  too  vague  and  general  to  mean  much 
in  practice.  Here  again,  it  may  be  asked,  how  is  the  industrial 
condition  of  the  community  to  be  established  at  law,  and  just 
what  "  industrial  condition  "  will  justify  a  reduction  of  a  road's 
earning  capacity  ?  Is  it  not  inevitable  that  counsel  for  the  state 
should  find  it  difficult  to  secure  satisfactory  evidence  in  such  a 
matter?  The  limitation  is  in  general  terms.  In  specific  cases 
how  much  would  it  amount  to?  Probably  not  much.  The  only 
points  ever  argued  by  the  states  have,  as  we  have  already  seen,^ 
been  summarily  rejected  by  the  Court. 

1  154  u.  S.  402. 

2  164  U.  S.  596-598;  169  U.  S.  544-547.    And  see  also  173  U.  S.  754-756. 
2  P.  106  of  original  monograph. 


JUDICIAL   RATE  EEVIEW  641 

The  fact  unfortunately  seems  to  be  that  the  euphonious  gen- 
eralities in  which  the  Court  has  bound  up  the  industrial  welfare 
of  the  American  commonwealths  are  more  beautiful  for  contem- 
plation than  they  are  efficacious  in  use.  To  discover  the  prac- 
tical meaning  which  is  embodied  in  them,  and  to  obtain  recog- 
nition of  it  by  the  courts,  is  one  of  the  difficult  problems  which 
now  confronts  the  commissions,  and  one  in  the  performance  of 
which  the  attitude  of  the  judiciary  up  to  the  present  time  gives 
little  encouragement. 

In  these  threejyays,  then  —  by  placing  an  improper  limitation 
on  the  legislative  power  to  reduce  earnings  through  regulation 
of  rates,  by  employing  erroneous  methods  in  determining  the 
effect  of  rates  on^earnings,  and  by  setting  up  inadequate  stand- 
ards of  reasonableness  in  earnings  —  has  the  Court  practically 
destroyed  the  state's  power  of  rate  reduction.  The  doctrine  of 
judicial  review  is  therefore  of  great  importance  in  the  develop- 
ment of  the  railroad  problem.  But,  more  than  that,  it  is  of 
significance  as  a  notable  triumph  achieved  by  the  principle  of 
individual  interest  over  that  of  the  public  welfare.  Under 
whatever  constitutional  pressure  the  courts  may  have  been  in 
announcing  the  doctrine,  it  is  felt  that  it  is  a  movement  against 
the  current  of  the  times,  and  that  it  must  result,  in  part,  in  deep- 
ening the  conviction  already  growing  in  the  minds  of  men,  that 
the  proper  balance  between  the  public  and  the  private  interests 
in  industrial  action  has  been  much  disturbed,  and  should  be 
speedily  restored. 

Harrison  Standish  Smalley 


XXV 

THE   MINNESOTA   RATE   CASE,   1913 1 

Mr.  Justice  Hughes  delivered  tlie  opinion  of  the  court: 

These  suits  were  brought  by  stockholders  of  the  Northern 
Pacific  Railway  C-ompany,  the  (Ireat  Northern  Railway  Com- 
pany, and  the  jNIinneapolis  &  St.  Louis  Railroad  Company, 
respectively,  to  restrain  the  enforcement  of  two  orders  of  the 
Railroad  &  Warehouse  Connnission  of  the  state  of  Minnesota, 
and  two  acts  of  the  legislature  of  that  state,  prescribing  maxi- 
mum charges  for  transportation  of  freight  and  passengers,  and 
to  prevent  the  adoption  or  maintenance  of  these  rates  by  the 
railroad  companies.  In  addition  to  the  companies,  the  attorney 
general  of  the  state,  the  members  of  the  Railroad  &  Warehouse 
Commission,  and  also,  in  the  (;ases  of  the  Northern  Pacific  and 
Great  Northern  Companies,  certain  representative  shippers,  were 
made  defendants. 

The  orders  and  acts,  which,  l)y  their  terms  related  solely  to 
charges  for  intrastate  transportation,  were  as  follows : 

(1)  The  commission's  order  of  September  6,  190(3,  effective 
November  15,  1906,  fixing  the  maximum  class  rates  for  general 
merchandise. 

(2)  The  act  approved  April  4,  1907,  to  take  effect  May  1, 1907, 
prescribing  2  cents  a  mile  as  the  maximum  fare  for  passengers, 
except  for  those  under  twelve  years  of  age,  for  whom  the  maxi- 
mum rate  was  to  be  1  cent  a  mile.    Laws  of  1907,  chap.  176. 

(3)  The  act  approved  April  18,  1907,  to  take  effect  June  1, 
1907,  fixing  maximum  commodity  rates  for  carload  lots  of  speci- 
fied weights.    Laws  of  1907,  chap.  232. 

1  33  Supreme  Court  Reporter,  p.  720.  The  conflict  of  Federal  and  State 
authority  is  discussed  in  Ripley's  Railroads:  Rates  and  Regulation,  chap,  xx, 
leading  up  to  this  decision,  not  then  rendered.  The  inter-related  cases  have 
been  only  in  part  decided,  but  follow  the  same  general  line  of  argument, 
differing  only  in  detail. 

642 


THE  MINNESOTA  RATE  CASE  643 

(4)  The  commission's  order  of  May  3,  1907,  effective  June  3, 
1907,  establishing  maximum  "in-rates"  for  designated  commodi- 
ties in  carload  lots  from  St.  Paul,  Minneapolis,  Minnesota  Trans- 
fer, and  Duluth  to  certain  distributing  centers.  No  complamt  is 
made  of  this  order  in  the  case  of  the  Minneapolis  &  St.  Louis 
Railroad  Company. 

In  1905,  the  legislature  of  Minnesota  had  adopted  a  joint 
resolution  directing  the  commission  "  to  undertake  the  work  of 
securing  a  readjustment  of  the  existing  freight  rates  in  this  state, 
which  will  give  a  more  uniform  system  of  rates  throughout  the 
state,  and  a  uniform  scale  of  percentages  which  each  class  rate 
shall  bear  to  the  first  class,  the  readjustment  to  secure  a  substan- 
tial reduction  in  the  existing  merchandise  rates."  Laws  of  1905, 
chap.  350.  Pursuant  to  this  direction,  the  commission  conducted 
a  prolonged  mvestigation.  Public  hearmgs  were  held  extending 
over  several  months,  in  which  the  railroad  companies  took  an 
active  part,  submitting  a  large  amount  of  testimony  with  respect 
to  the  matters  involved.  The  commission  found  the  existing  class 
rates  for  general  merchandise  to  be  unreasonable,  and  by  the  order 
of  September  6,  1906,  above-mentioned,  established  a  new  sched- 
ule of  lower  maximum  rates.  These  rates  were  applied  to  the 
classes  shown  by  the  so-called  "Western  Classification"  between 
stations  in  the  state.  This  was  a  classification,  by  which  articles 
were  arranged  in  groups  with  reference  to  their  general  charac- 
ter, value,  and  the  cost  of  transportation,  and  with  modifications 
made  from  time  to  time,  it  had  long  been  used  by  common  car- 
riers in  the  West  and  Northwest  as  a  basis  for  rates,  the  com- 
modities of  each  class  taking  the  same  rate  under  like  conditions. 
In  jNIinnesota,  however,  a  large  number  of  commodities,  amount- 
ing to  several  hundred,  had,  by  the  mtervention  of  the  commission, 
been  removed  from  this  classification  by  the  application  of  special 
rates,  known  as  "  commodity  rates,"  or  reduced  in  class  so  that 
the  Western  Classification  in  operation  in  that  state  was  very 
materially  different  from  that  in  general  use  as  a  basis  of  rates 
in  other  states. 

The  schedule  of  rates  set  fortli  in  the  order  of  September  6 
was  such  that  each  rate  for  each  class  bore  an  exact  relation  to 


IU4  EAILWAV   PROHl.EMS 

each  otlu'r  rate.  Tlic  plan  of  the  scheduU'  was  this:  For  first- 
class  MU'rcliaiulisi'  an  allowance  of  11.02  cents  per  cwt.  was  made 
for  terminal  charges,  and,  in  a(hIition,  there  was  permitted  a  haul- 
ing charge  of  .98  of  a  cent  tor  each  5  miles  up  to  200  miles,  for 
each  10  miles  over  200  miles  up  to  400  miles,  and  for  each 
20  miles  over  400  miles  up  to  500  miles.  For  other  classes,  the 
rates  were  a  fixed  per  centum  of  the  corresponding  rates  foi-  the 
first  class.  These  rates  w-ere  maximum  terminal  rates ;  that  is, 
they  related  to  transportation  to  or  from  certain  important  sta- 
tions called  terminal  or  distributing  stations.  Between  stations 
neither  of  which  is  so  designated,  the  rates  of  the  schedule  might 
be  hicreased  by  5  per  centum. 

The  railway  companies  complied  with  this  order  and  the  class 
rates  were  put  into  effect  on  November  15,  1906. 

The  commission  also  had  under  consideration  a  reduction  in 
the  commodity  rates,  at  which  certain  commodities  such  as  grain, 
coal,  lumber,  and  live  stock  were  moved  in  carload  lots.  Because 
of  the  agitation  with  respect  to  these  charges,  the  raih'oad  com- 
panies voluntarily  reduced  their  rates  about  10  per  cent  on  grain 
(September  1,  1906)  and  coal  (October  22,  1906).  The  commis- 
sion, however,  on  December  14,  1906,  ordered  a  further  reduction 
in  the  commodity  rates.  The  railroad  companies  brought  suit  in 
the  circuit  court  of  the  United  States,  and  obtained  a  temporary 
injunction  restraining  the  enforcement  of  this  order.  Thereupon 
the  legislature  passed  the  act  above-mentioned,  approved  April  18, 
1907,  which  established  a  new  schedule  of  maximum  commodity 
rates  in  all  respects  like  that  fixed  by  the  commission,  save  that 
the  reduction  was  not  so  great.  The  act  grouped  the  various 
commodities  which  it  embraced  in  several  classes,  for  which 
different  rates  were  prescribed.  There  was  no  fixed  percentage 
relation  between  the  classes,  and  no  regular  rate  of  progression 
of  the  various  charges  with  increasing  distance.  In  other  respects 
the  method  of  making  the  schedules  was  similar  to  that  adopted 
in  the  order  of  September  6,  1906,  the  hauling  charge  decreasing 
as  the  mileage  mcreases. 

The  remaining  action  with  respect  to  freight  rates  was  taken 
by  the  commission  in  the  order  of  May  3,  1907,  for  the  purpose 


THE  MINNESOTA  EATE  CASE  645 

of  securing  more  favorable  in-rates  to  a  number  of  minor  jobbing 
centers.  It  applied  to  certain  commodities,  such  as  groceries  in 
carload  lots,  and  was  supplemental  to  the  order  of  September  6, 
190(),  being  intended  to  re-establish  the  relation  which  had  pre- 
viously existed  between  the  m-rates  to  these  distributing  points 
and  the  general  schedule  of  class  rates. 

The  railroad  companies  obeyed  this  order  of  May  3,  1907,  as 
they  had  that  of  September  6,  1906,  and  they  also  put  into  effect 
the  passenger  rate  of  2  cents  a  mile.  They  were  about  to  adopt 
the  commodity  rates  fixed  by  the  act  of  April  18,  1907,  when 
these  suits  were  brought  and  a  temporary  injunction  restrained 
them  from  taking  that  course.  The  other  rates,  that  is,  the  class 
rates,  special  in-rates,  and  the  passenger  rates  were  permitted  to 
remain  in  force  pending  the  suits. 

The  complainants  assailed  the  acts  and  orders  upon  the  grounds 
(1)  that  they  amounted  to  an  unconstitutional  interference  with 
mterstate  commerce,  (2)  that  they  were  confiscatory,  and  (3)  that 
the  penalties  imposed  for  their  violation  were  so  severe  as  to 
result  in  a  denial  of  the  equal  protection  of  the  laws  and  a  depri- 
vation of  property  without  due  process  of  law.  The  jurisdiction 
of  the  circuit  court  was  sustained  in  Ex  parte  Young,  209  U.  S. 
123,  52  L.  ed.  714,  13  L.R.A.  (N.S.)  932,  28  Sup.  Ct.  Rep.  441, 
14  Ann.  Cas.  764,  where  it  was  also  held  that  the  penal  pro- 
visions of  the  acts,  operatmg  to  preclude  a  fair  opportunity  to 
test  their  validity,  were  unconstitutional  on  their  face.  The  cir- 
cuit court  then  referred  the  suits  to  a  special  master,  who  took 
the  evidence  and  made  an  elaborate  report  sustaining  the  com- 
plainants' contentions.  His  findings  were  confirmed  by  the  court, 
and  decrees  were  entered  accordhigly,  adjudging  the  acts  and 
orders  (with  the  exception,  in  the  case  of  the  Minneapolis  & 
St.  Louis  Railroad  Company,  of  the  order  of  May  3,  1907) 
to  be  void,  and  permanently  enjoining  the  enforcement  of  the 
prescribed  rates,  freight  and  passenger,  and  their  adoption  or 
maintenance  by  the  railroad  companies.    184  Fed.  765. 

From  these  decrees,  the  attorney  general  of  the  state  and  the 
members  of  the  Railroad  &  Warehouse  Commission  prosecute 
these  appeals. 


G40  KA1LWA\-    PKOISLEMS 

The  penal  pnn'isions  being-  se[)arable  .  .  .  the  question  of  the 
validity  of  the  aets  and  orders  iixing  maxiniuni  rates  is  presented 
in  two  distinct  aspects :  (1)  with  respect  to  their  effect  on  inter- 
state eomnierce,  and  (2)  as  to  their  alleged  confiscatory  character. 

First.  As  to  interference  with  interstate  commerce. 

None  of  the  acts  and  orders  prescribes  rates  for  goods  or  per- 
sons moving  in  interstate  commerce.  By  their  terms,  they  apply 
solely  to  commerce  that  is  internal.  Despite  this  obvious  pur- 
port, it  has  been  found  below  that  the  inevitable  effect  of  the 
state's  requirements  for  intrastate  transportation  was  to  impose 
a  direct  burden  upon  interstate  commerce,  and  to  create  unjust 
discriminations  between  localities  in  Minnesota  and  those  in  ad- 
joining states;  and  hence,  that  they  must  fall,  as  repugnant  to 
the  commerce  clause  and  to  the  action  of  Congress  under  it.  To 
support  its  conclusion,  the  circuit  court  presents  an  impressive 
array  of  facts  drawn  from  the  approved  findings  of  the  master. 
184  Fed.  775-792.  Without  giving  all  the  details  they  embrace, 
these  findings  may  be  summarized  as  follows : 

I.  The  railroad  property  of  each  of  the  three  companies  con- 
stitutes a  single  system.  On  June  30,  1906,  the  Northern  Pacific 
Railway  Company  (a  Wisconsin  corporation)  operated  7,695  miles 
of  track,  of  which  1,625  miles  were  in  JMinnesota.  The  Great 
Northern  Railway  Company  (a  iVlinnesota  corporation)  at  the 
same  time  operated  8,528  miles  of  track,  of  which  2,779  miles 
were  in  Minnesota.  Their  lines  extend  westerly  from  Superior, 
Wisconsin,  and  Duluth,  INlinnesota,  and  from  St.  Paul  and  Min- 
neapolis, through  the  states  of  Minnesota,  North  Dakota,  Mon- 
tana, Idaho,  Wasliington,  and  Oregon,  to  the  Pacific  coast.  The 
Minneapolis  &  St.  Louis  Railroad  Company  (also  a  Minnesota 
corporation)  operated  1,028  miles  of  track  running  from  St.  Paul 
and  Mmneapolis  westerly  and  southerly  to  points  in  South  Dakota 
and  Iowa.  In  the  case  of  each  company,  the  movement  of  inter- 
state and  local  traflic  takes  place  at  the  same  time,  on  the  same 
rails,  with  the  same  employees,  and  largely  by  means  of  the  same 
trains  and  cars.  There  has  never  been  a  separation,  and  it  is  im- 
practicable, in  the  exercise  of  fair  economy,  to  make  a  separation, 
between  the  interstate  and  intrastate  business  in  the  case  either 


THE  MINNESOTA  RATE   CASE  647 

of  freight  or  of  passengers.  By  far  the  larger  part  of  the  traffic 
is  interstate.  In  the  year  190G  the  freight  business  of  the  North- 
ern Pacific  Company,  local  to  jNIinnesota,  was  2.67  per  cent  of 
its  entire  freight  business,  and  12.33  per  cent  of  its  freight  busi- 
ness touching  the  state,  and  its  passenger  business  local  to  the 
state  was  5.79  per  cent  of  its  entire  passenger  business,  and 
67.21  per  cent  of  its  passenger  business  touching  the  state. 

The  conditions  attending  the  transportation  of  passengers  and 
freight  are  substantially  the  same  for  like  distances  within  those 
portions  of  the  states  of  Wisconsin,  Minnesota,  North  Dakota, 
and  vSouth  Dakota  reached  by  the  lines  of  these  companies, 
whether  the  transportation  is  interstate  or  wholly  mtrastate. 
Prior  to  the  acts  and  orders  in  question,  the  companies  had 
maintained  rates  which  were  relatively  fair,  and  not  discrimina- 
tory as  between  interstate  and  intrastate  business ;  and  it  is  con- 
cluded that  any  substantial  change  in  the  basis  of  rates  thus 
established,  due  only  to  the  fact  that  the  transportation  was  in- 
terstate or  was  local  to  a  state,  and  any  substantial  difference  m 
rates  as  between  the  two  sorts  of  trafhc,  would  constitute  unjust 
discrimination  in  fact. 

II.  The  state  line  of  jNIinnesota  on  the  east  and  west  runs  be- 
tween cities  which  are  in  close  proximity.  Superior,  Wisconsin, 
and  Duluth,  Minnesota,  are  side  by  side  at  the  extremity  of  Lake 
Superior.  Opposite  one  another,  on  the  western  boundary  of  the 
state,  lie  Grand  Forks,  North  Dakota,  and  East  Grand  Forks, 
Mmnesota ;  Fargo,  North  Dakota,  and  ^loorhead,  ^Minnesota ; 
and  Wahpeton,  North  Dakota,  and  Breckenridge,  jNIinnesota. 
The  cities  in  each  pair  ship  and  receive,  to  and  from  the  same 
localities,  the  same  kinds  of  freight.  The  railroad  companies 
have  always  put  each  on  a  parity  with  the  other  in  the  matter 
of  rates,  and  if  there  were  a  substantial  difference  it  would  cause 
serious  injury  to  the  commerce  of  the  city  having  the  liigher  rate. 
If  the  Northern  Pacific  Company  failed  to  maintain  as  low  rates 
on  traffic  in  and  out  o(  Su^jerior  as  on  that  to  and  from  Duluth, 
its  power  to  transact  interstate  business  between  Superior  and 
points  in  Minnesota  would  be  seriously  impaired  and  the  value 
of  its  property  in  Superior  would  be  depreciated. 


IMS  KAii.w.w    iM;(tr.M':MS 

Tho  inaxiinnni  class  rates  fixed  by  the  order  of  September  6, 
lOOti,  were  t'roin  '_MI  per  eeiit  to  25  per  cent  lower  than  those 
theretofore  iiiaiiit;iiiu'(l  by  the  Northern  I'acitic  and  (xreat  North- 
ern Companies  tor  transportation  in  Wisconsin,  Minnesota,  and 
North  Dakota,  whether  sncli  transportation  Avas  local  to  one  of 
these  states  or  was  interstate  between  any  two  of  them.  When 
the  Northern  Paeitic  Company,  pnrsnant  to  this  oriU'r,  installed- 
the  new  intrastate  rates,  it  rednced  its  interstate  rates  between 
Superior  and  points  in  INImnesota  to  an  exact  parity  with  its  rates 
from  Duluth,  Reduction  was  also  made  in  the  rates  between  both 
Duluth  and  Superior  and  the  above-mentioned  points  on  the  west- 
ern boundary,  so  as  to  put  the  border  cities  in  North  Dakota  on  an 
equal  basis  with  the  neighboring  cities  in  Minnesota.  This  reduc- 
tion was  substantial ;  and,  had  it  not  been  made,  the  places  adjoin- 
ing the  boundary,  but  outside  the  state,  could  not  have  competed 
with  those  within.  Although  the  Northern  Pacific  Company 
thereb}'  suffered  a  substantial  loss  in  revenue  from  its  interstate 
busuiess,  it  had  the  choice  of  submitting  to  that  loss  or  suffering 
substantial  destruction  of  its  interstate  commerce  to  these  border 
localities  in  articles  covered  by  the  orders.  At  the  same  time, 
the  Great  Northern  Company  made  similar  reductions,  althougli, 
in  its  case,  the  transportation  between  Duluth  and  points  in 
Minnesota  was  interstate,  —  its  line  passing  through  Wisconsin. 
The  reason  for  these  reductions  was  to  preserve  the  relation  in 
rates  from  Duluth  whicli  had  always  existed  between  localities 
on  the  Great  Northern  line  and  tliose  similarly  situated  on  the 
line  of  the  Northern  Pacific,  and  to  meet  the  reduced  rates  on 
the  latter. 

III.  Moorhead,  Minnesota,  Fargo  and  Bismarck,  North  Dakota, 
Billings  and  Butte,  Montana,  are  so-called  jobbing  centers.  Rates 
had  always  been  accorded  to  them  by  the  Northern  Pacific  Com- 
pany which  would  allow  tliem  to  compete  with  their  nearest 
neighbors  and  with  St.  Paul,  IVIinneapolis,  and  Duluth.  The 
order  of  September  6,  1906,  as  supplemented  by  that  of  May  3, 
1907,  substantially  reduced  carload  rates  from  the  eastern  termi- 
nals to  Moorhead.  This  reduction  would  have  given  Moorhead 
an  advantage  ui  territory  accessible  to  its  jobbing  industry  not 


THE   MINNESOTA  RATE  CASE  649 

only  as  against  Fargo,  unless  carload  rates  to  Fargo  were  simi- 
larly reduced,  but  also  as  against  Duluth,  St.  Paul,  and  ^Nlinne- 
apolis  unless  less-than-carload  rates  from  these  places  to  points 
accessible  to  IMoorhead,  which  included  a  considerable  territory 
in  North  Dakota,  were  proportionately  reduced.  If  Fargo  were 
protected  as  against  IMoorhead,  it  would  have  an  advantage  over 
Bismarck  in  territory  common  to  them  both,  and  an  advantage 
over  the  eastern  terminals  in  territory  common  to  them  and  to 
Fargo,  unless  carload  rates  from  the  eastern  terminals  to  Bis- 
marck and  less-than-carload  rates  from  those  terminals  to  the 
territory  accessible  to  Fargo  were  correspondingly  reduced  ;  and 
so  on  from  distributing  point  to  distributing  point. 

IV.  Every  rate  comprehends  two  terminal  charges,  the  initial 
and  the  final,  and  a  haulage  charge.  It  is  declared  to  be  a  car- 
dinal principle  of  rate-making  that  a  rate  for  a  longer  distance 
should  be  proportionately  smaller  than  one  for  a  shorter  distance ; 
for  even  if  the  haulao^e  charcje  in  the  former  case  were  the  same 
per  mile,  the  rate  per  ton  per  mile  should  be  less  for  the  longer 
haul,  as  the  terminal  charges  would  be  spread  over  a  greater 
distance.  A  comparison  disclosed  that  the  rates  established  by 
the  order  of  September  6,  1906,  and  maintained  by  the  Northern 
Pacific  Company  between  St.  Paul  and  Moorhead,  were  in  gen- 
eral substantially  less  than  the  proportion  of  the  interstate  rates 
maintained  by  the  company  to  various  points  in  North  Dakota 
and  Montana,  based  on  the  mileage  in  Minnesota  as  compared 
to  that  of  the  entire  haul.  jVIaintaining  such  a  relation  of  rates 
involves,  it  is  found,  substantial  and  unjust  discrimination  in 
fact  against  the  interstate  localities. 

V.  After  the  installation  by  the  Great  Northern  and  Northern 
Pacific  Companies  of  the  rates  prescribed  by  the  order  of  Septem- 
ber 6,  1906,  it  appeared  that  the  sum  of  the  local  rates  from  St. 
Paul  to  Moorhead  and  from  Moorhead  to  many  points  in  North 
Dakota  was  less  than  the  interstate  rates  theretofore  maintained 
from  St.  Paul  to  these  points.  Both  companies  thereupon  estab- 
lished rates  from  St.  Paul  to  the  North  Dakota  points  as  a  I'ule  no 
greater  than  the  sum  of  the  locals  on  Moorhead,  but  sul)stantially 
lower  in  ijeneral  than  the  hiterstate  rates  in  force  ^\•hen  the  order 


Gr)0  RAILWAY    riiOr.LEMS 

todk  otVoct.  ^laintainino-  iiUcrstate  rates  fniin  St.  Paul  to  North 
Dakota  localities  substantially  o'reater  than  the  sum  of  the  locals 
based  on  the  state  line  would  have  caused  uii  just  discrimination 
hi  fact.  The  actual  reason  for  the  reduction  in  the  interstate 
rates  was  to  prevent  transhipment  at  Moorhead  in  order  to  take 
advantage  of  the  lower  sum  of  the  locals,  and  to  retain  on  its 
hue  trathc  which  mio-ht  reach  Moorhead  over  other  lines  by  reason 
of  competition,  and,  as  to  less-than-carload  lots,  to  enable  jobbers 
in  the  Twin  Cities  and  Duliith  to  compete  with  those  in  Moor- 
head and  Fargo  in  territory  which  otherwise  the  latter  would 
have  exclusively  occupied  by  reason  of  their  closer  proximity. 

VI.  It  is  further  held  to  be  one  of  the  fundamental  dogmas 
of  rate-making  that  the  haulage  charge  per  mile  should  not  in- 
crease with  increasmg  distance  if  the  conditions  be  the  same. 
Under  the  progressive  decrease  in  the  haulage  charge  within  the 
state,  provided  by  the  order  of  September  6,  1906,  100  pounds 
of  merchandise  transported  by  the  Northern  Pacific  from  St.  Paul 
to  Moorhead,  248  miles,  would  have  been  hauled  for  48  miles, 
at  the  rate  of  .98  cents  per  10  miles,  when  Moorhead  is  reached. 
If  the  same  haulage  charge  of  .98  cents  per  10  miles  were  applied 
for  the  remaining  distance  to  Spokane,  1510  miles  from  St.  Paul 
(which  is  said  to  be  taken  as  a  fair  example  merely  to  illustrate 
the  principle),  it  would  produce  a  rate  from  St.  Paul  to  Spokane 
on  first-class  merchandise  of  $1.79  per  cwt.  The  Interstate  Com- 
merce Commission  in  the  Spokane  rate  case  fixed  the  reasonable 
rate  on  first-class  merchandise  from  St.  Paul  to  Spokane  of  $2.50 
per  cwt.  Maintaining  this  rate  and  the  state  schedule  in  Minne- 
sota at  the  same  time  necessarily  mvolves  the  raising  of  the  per 
mile  haulage  charge  after  the  Mmnesota  state  line  has  been 
crossed,  or  the  charge  of  a  higher  rate  within  iNIinnesota  for  its 
mileage  proportion  of  long-haul  interstate  business  than  for  busi- 
ness local  to  the  state  which  is  carried  under  the  same  conditions, 
and  hence  is  found  to  result  in  unjust  discrimination  m  fact 
against  localities  west  of  the  Minnesota  line. 

VII.  For  more  than  twenty-five  years  the  Northern  Pacific 
Company  has  maintained  an  equal  basis  of  rates  on  merchandise 
between   its  eastern   and   western   terminals,  respectively,  and 


THE   MI^^NESOTA  EATE  CASE  651 

Butte,  ]\Iontana,  and  between  its  eastern  and  western  terminals, 
respectively,  and  localities  intermediate  between  them  and  Butte. 
Other  railroads  reaching  Butte  have,  during  the  same  time,  main- 
tained like  rates  to  Butte  from  Sioux  City,  Omaha,  St.  Joseph 
and  Kansas  City  on  the  east,  and  from  San  Francisco,  Sacramento, 
and  Los  Angeles  on  the  west.  Butte  has  been  as  the  hub  of  a 
wheel  with  spokes  representing  equal  rates  to  these  various  cities. 
Industries,  it  is  said,  have  been  born  and  have  grown  in  reliance 
upon  this  parity  of  rates.  Intermediate  pomts  have  had  rates 
fixed  in  proportion  to  the  Butte  rates.  Competition  of  markets 
and  of  carriers  has  brought  this  about.  The  Northern  Pacific 
Company  cannot  maintain  the  state  rates  between  its  eastern 
terminals  and  Moorhead,  and  at  the  same  time  its  interstate  rates 
from  its  eastern  terminals  to  Butte,  without  substantial  discrimina- 
tion in  fact  against  Butte  or  localities  intermediate  between  its 
eastern  terminals  and  Butte.  If  it  lowers  its  rates  from  its  east- 
ern terminals  to  Butte  and  intermediate  stations  to  such  an 
extent  as  to  obviate  this  discrimination,  it  must,  to  preserve  the 
relation  which  has  always  existed,  lower  to  a  like  extent  its  rates 
from  its  western  terminals  to  Butte  and  intermediate  stations. 
Consequently,  it  is  found  that  if  the  Northern  Pacific  Company 
maintains  the  commission-made  rates  between  its  eastern  ter- 
minals and  Moorhead,  it  must  either  substantially  discriminate 
in  fact,  or  destroy  the  general  relation  of  rates  which  has  existed 
for  many  years  in  the  territory  between  the  Missouri  river  and 
the  Pacific  coast. 

VIII.  Prior  to  the  taking  effect  of  the  order  of  September  6, 
1906,  the  Great  Northern  and  Northern  Pacific  Companies  had 
established  joint  througli  rates  in  connection  with  other  carriers 
from  all  localities  east  or  south  of  Minnesota  to  all  points  in 
Minnesota  west  of  St.  Paul  and  ^Minneapolis.  After  the  rates 
prescribed  by  this  order  were  installed,  the  sum  of  the  locals  on 
St.  Paul  from  all  localities  south  and  east  of  Minnesota  to  points 
in  Minnesota  west  of  St.  Paul  and  Minneapolis  was  substan- 
tially less  than  the  then-existing  interstate  rates  for  the  through 
haul  to  such  western  points.  To  avoid  the  resulting  discrimi- 
nation in  favor  of  St.  Paul,  the  companies  withdrew  the  existing 


C):)-2  liAlLWAY    J'KOl'.LEiMS 

inttM-state  rates,  and  ostablishod  a  now  tariff  no  liiolior  (lian  Iho 
snm  of  the  loeals  on  St.  Panl. 

IX.  Fnrtlier  illustrations  are  given  of  ine(|ualities  resulting 
from  the  redueed  Minnesota  rates  as  compared  with  rates  for 
like  transportation  under  similar  conditions  into  adjoining  states; 
as,  for  example,  from  Mooi'lunul  easterly  to  Minnesota  })oints  and 
westerly  into  North  Dakota,  and  also  of  the  effects  produced  in 
the  api)li('ation  of  tlu^  state  rates  by  reason  of  the  difference  in 
the  distances  from  St.  Paul  at  which  the  state  line  is  rcuiched 
on  similar  hauls  over  differciut  lines.  As  the  schedule  of  Septem- 
ber 6,  loot),  presci-ibes  a  fixed  relation  between  rates  for  different 
distances  and  different  classes,  the  conclusion  is  that  if  the  rule 
nmst  be  atlhered  to  in  Minnesota,  it  cannot  be  departed  from 
substantially  because  of  the  intervention  of  a  state  hue  at  one 
distance  or  another  without  involving  unjust  discrimination  in 
fact. 

It  is  found  further  that  while,  after  the  order  of  September  6, 
1906,  became  effective,  both  tlie  Great  Northern  and  the  Northern 
Pacific  Companies  reduced  certain  interstate  rates,  as  already 
mentioned,  the  reduction  was  not  to  such  extent  as  to  remedy 
the  discrimination  resulting  from  the  fact  that  in  most  cases  the 
general  basis  of  rates  within  Minnesota  was  substantially  lower 
than  that  maintained  in  North  Dakota  or  upon  traffic  crossing 
the  state  line. 

X.  The  similarity  in  the  conditions  of  interstate  and  intrastate 
transportation  is  found  also  with  respect  to  the  commodities  for 
which  rates  were  prescribed  by  the  act  of  April  18,  1907  (chap. 
232).  The  main  Imes  and  branches  of  the  Northern  Pacific  and 
Great  Northern  Companies  within  Minnesota  and  North  Dakota, 
with  the  exception  of  certain  limited  tracts,  lie  within  grain  fields, 
and  grain  is  shipped  in  sul)stantial  quantities  from  nearly  all 
stations  in  these  fields  to  Duluth,  Minneapolis,  and  Superior. 
Shipments  of  coal  originate  at  the  head  of  the  Lakes,  —  that  is, 
at  Duluth  or  Superior,  —  and  find  their  destination  at  all  locali- 
ties served  by  the  companies  in  ]\Iinnesota  and  eastern  North 
Dakota.  Shipments  of  lumber  originate  at  Duluth,  Cloquet, 
Little  Falls,  and  other  places  in  Minnesota,  and  are  destined  to 


THE  MINNESOTA  RATE  CASE  653 

points  throughout  Minnesota  and  North  Dakota.  Shipments  of 
hve  stock  are  made  in  Minnesota,  South  Dakota,  and  eastern 
Montana  and  go  to  South  St.  Paul  or  Chicago.  So  far  as  the 
conditions  of  transportation  are  concerned,  it  matters  not,  as  to 
commodities  moving  eastwardly,  whether  the  shipment  is  made 
in  jNIontana,  North  Dakota,  or  INIinnesota,  or  the  transportation 
ends  in  Minnesota  or  in  Wisconsm ;  and,  as  to  commodities  mov- 
ing westwardly,  whether  the  shipments  are  from  Minnesota 
points  or  from  Superior,  or  whether  tliey  find  their  destination 
in  Minnesota  or  in  North  Dakota.  The  conclusion  is  that  to 
maintain  the  commodity  rates  for  transportation  wholly  within 
Minnesota  simultaneously  with  the  interstate  rates  now  in  force 
would  involve  unjust  discruuination  and  would  seriously  impair 
the  interstate  busmess  of  the  companies,  to  avoid  which  it  would 
be  necessary  to  reduce  the  basis  of  the  interstate  rates  to  a  sub- 
stantial parity  with  that  prescribed  by  the  state  law.  It  is  also 
stated  that  if  the  rates  fixed  by  chapter  232  of  the  Laws  of  1907 
should  become  effective,  the  rate  on  sliipments  of  wheat,  with 
milling-in-transit  privileges,  from  points  in  Minnesota  via  Min- 
neapolis to  Chicago,  would  be  automatically  reduced,  and  that 
unless  all  interstate  rates  between  Minnesota  points  and  Chi- 
cago via  interior  mill  towns  with  similar  privileges  should  be 
correspondingly  reduced,  jNIinneapolis  would  have  a  substantial 
advantage  over  such  towns  in  its  interstate  rates. 

XI.  Prior  to  the  act  of  1907,  fixing  the  rate  of  2  cents  a  mile, 
the  general  basis  of  rates  for  passengers  (of  twelve  years  of  age 
or  over)  between  any  two  points  on  the  Northern  Pacific  system 
had  been  for  some  years  3  cents  a  mile.  After  the  new  state  rate 
had  been  installed,  the  sum  of  the  locals  between  Moorhead  and 
other  Minnesota  points  and  iNIoorhead  and  points  westerly  thereof 
was  less  than  the  then-ex istmg'  through  interstate  rates.  The 
passenger  fare  act  took  effect  May  1,  1907,  and  in  the  first  month 
thereafter  the  revenue  for  passengers  on  the  Northern  Pacific 
line  between  Moorhead  and  other  Minnesota  points  increased 
647  per  cent  over  that  of  the  corresponding  month  of  the  pre- 
ceding year,  while,  eliminating  INIoorhead  business,  the  revenue 
for  passenger  business  within  the  state  decreased  2  per  cent.    In 


O")-!  KAILWAV    FROl'.LKMS 

June,  1007,  the  seeoiul  month,  there  were  sold  by  the  Northern 
Piu'itie  Company,  4,087  tiekets  between  St.  l*aul  or  JNlinneapolis, 
on  the  one  hand,  imd  Moorhead  or  East  Grand  Forks  on  the 
othi'v,  as  compared  with  only  172  such  tickets  m  the  correspond- 
ing- month  of  the  year  before ;  and  in  June,  1907,  there  were 
sold  only  173  tickets  between  St.  Paul  or  Minneapolis,  and  Grand 
Forks  and  Fargo,  as  compared  with  984  such  tickets  in  the  cor- 
responding month  of  the  previous  year.  In  INlay  and  June,  190G, 
only  one  cash  full  fare  was  collected  on  a  train  from  Moorhead 
to  St.  Paul  or  ^Minneapolis.  In  those  months  in  1907  there  were 
1,168  cash  full  fares  and  82  cash  half  fares  so  collected.  Hence, 
it  is  said,  the  necessary,  immediate,  and  direct  effect  of  the  law 
was  to  deprive  the  Northern  Pacific  Company  of  a  substantial 
amount  of  its  interstate  passenger  business  through  Moorhead. 

Notwithstanding  the  facility  with  which  interstate  passengers 
could  avoid  the  discrimination  against  them  by  making  two  con- 
tracts with  the  company,  it  is  found  that  discrimination  in  fact 
still  existed  against  the  interstate  passenger  who,  applying  for 
a  tlirough  ticket,  did  not  know  that  the  sum  of  the  locals  on 
Moorhead  was  less  than  the  through  rate,  against  the  passenger 
with  a  trunk  which  he  could  not  check  through  unless  on  a 
through  ticket,  and  against  a  passenger  who  was  compelled  to 
use  a  sleeping  car.  The  Northern  Pacific  Company  shortly  reme- 
died this  discrimination  by  reducing  all  its  interstate  fares  for 
passenger  transportation  through  Moorhead  to  an  amount  no 
greater  than  the  sum  of  the  locals  over  Moorhead.  Before  this 
reduction  Wisconsin  had  fixed  the  maximum  passenger  fare  at 
2  cents  a  mile,  and  North  Dakota  at  2^  cents  a  mile.  The  rates 
thereafter  established  by  the  Northern  Pacific  Company  between 
St.  Paul,  for  example,  and  points  in  North  Dakota  and  beyond, 
and  by  the  Northern  Pacific  Company  jointly  with  other  com- 
panies for  transportation  between  points  easterly  of  Minnesota 
and  points  on  the  line  of  the  Northern  Pacific,  were  in  general 
less  than  the  previous  rates  by  approximately  1  cent  per  mile 
for  the  mileage  in  Wisconsin  and  Minnesota,  and  by  ^  cent  per 
mile  for  the  mileage  in  North  Dakota.  It  is  concluded  that  these 
reductions  were  compelled  to  avoid  unjust  discrimination,  and 


THE  MINNESOTA  RATE  CASE  655 

in  order  that  the  companies  might  transact  interstate  passenger 
business  freely  and  without  impairment  of  volume. 

There  are  added  various  hypothetical  calculations  of  the  losses 
which  would  have  been  sustained  if  the  basis  prescribed  by  the 
state  acts  and  orders  had  been  applied  to  the  interstate  business 
and  to  local  business  in  other  states.  We  shall  have  occasion 
later  to  refer  to  the  actual  results  of  the  business  of  the  railroad 
companies  during  tlie  time  that  the  rates  fixed  by  the  acts  and 
orders  (with  the  exception  of  the  commodity  rates)  were  m  force, 
and  to  the  effect  upon  revenue  which  the  adoption  of  the  com- 
modity rates  would  have  had. 

The  foregoing  findings,  as  stated  by  the  master,  were  made 
"  without  regard  to  the  justness  or  otherwise  in  fact  of  the  inter- 
state rates  so  affected  by  such  local  rates."  Tlie  determination 
of  the  reasonableness  of  the  interstate  rates  was  not  deemed  to 
be  within  the  province  of  the  court. 

The  appellants  do  not  concede  the  correctness  of  the  findings 
in  their  full  scope,  and  insist  upon  qualifications.  They  deny 
that  the  evidence  justified  the  finding  that  the  companies  had 
maintained  "  an  equable,  that  is,  relatively  fair,  basis  of  rates  " 
prior  to  the  acts  and  orders  in  question.  The  general  or  com- 
prehensive system  of  interdependent  and  fairly  related  rates, 
each  so  equitably  adjusted  to  the  others  that  any  local  change 
must  of  necessity  throw  the  whole  out  of  balance,  is  declared  to 
exist  only  in  imagination,  —  to  be  a  fiction  constructed  in  disre- 
gard of  the  facts  of  rate-making,  and  without  attention  to  the 
inconsistencies  shown  by  the  schedules  which  had  been  in  force. 
The  actual  reductions  in  interstate  rates,  wliich  followed  upon 
the  adoption  of  the  state  tariffs,  were  made,  it  is  urged,  in  rates 
voluntarily  established  by  the  companies  themselves  which  had 
not  been  declared  to  be  reasonable  by  competent  authority,  and 
in  any  case  furnish  no  standard  by  which  the  validity  of  the 
action  of  the  state,  in  the  control  of  its  internal  affairs,  should 
be  judged.  The  appellants  say  that  the  local  rates  in  ^Nlhmesota 
were  incongruous  and  unreasonable ;  that  frequent  changes  in 
the  interest  of  favored  shippers  had  been  made  through  the  filing 
of  temporary  intrastate  tariff's  until  the  practice  was  stopped  by 


(i:)0  RAILWAY  ^ROl'.LE^rs 

a  statute  of  1005  (eluip.  17G),  forbidding  cliiinges  without  the 
consent  of  the  conmiission  ;  that  with  respect  to  gram  and  hve 
stock,  the  principal  agrimiltural  products  of  the  state,  the  com- 
panies maintamed  an  ''  inharmonious  jumble  of  arbitrary  rates  "  ; 
and  that  the  acts  and  orders  in  question  were  designed  to  cor- 
rect ine(iualitics  in  the  intrastate  tariffs,  and  to  prescribe  charges 
which,  u[)(>n  tlioiough  investigation  and  after  public  hearings  in 
which  the  companies  [)articipated,  were  found  to  be  reasonable 
and  were  brought  into  suitable  relation  with  each  otlier  by  means 
of  a  scientific  plan.  And  it  is  denied  that  unjust  discrimuiation 
as  agamst  localities  without  the  state  can  be  predicated  of  the 
establishment  of  reasonable  state  rates. 

It  is  also  insisted  that  the  prescribed  intrastate  freight  rates 
were  not  in  general  lower  than  the  existing  interstate  rates. 
Reference  is  made  to  the  long-distance  traffic,  which,  it  is  said, 
was  moved  within  the  state  on  proportionals  of  long-haul  rates 
which  were  much  below  the  local  rates  fixed  by  the  state.  It  is 
pointed  out  that  the  master  found,  in  passmg  upon  the  question 
whether  the  rates  were  confiscatory,  that  the  grost  revenue  wliich 
was  derived  from  the  interstate  freight  business  (Airing  the  fiscal 
year  ending  June  30,  1908  (when  all  the  rates  in  question  were 
in  force  save  the  commodity  rates),  was  greater  per  ton-mile 
than  that  derived  in  the  same  period  from  the  interstate  busmess 
withm  the  state,  being  in  the  case  of  the  Northern  Pacific  Com- 
pany in  the  ratio  of  1.1387  to  1,  and  in  that  of  the  Great  North- 
ern Company  of  2.02891  to  1.  The  appellants  also  contest  the 
validity  of  the  argument  based  on  a  hypothetical  extension  be- 
yond the  state  line  of  the  "  rate  of  progression  "  for  additional 
distance  which  had  been  prescribed  by  the  state  solely  with 
reference  to  mternal  traffic,  and  they  submit  illustrations  of  in- 
congruities which  they  contend  would  be  shown  by  a  similar 
extension  of  the  rate  of  progression  disclosed  by  the  former 
intrastate  tariffs  of  the  companies.  Agam,  it  is  urged  that  the 
extent  of  the  reductions  attributable  to  the  2-cent  fare  law  may 
not  be  estimated  properly  by  a  comparison  with  the  former 
maximum  rate  of  3  cents  a  mile.  Various  rates  had  been  in 
force  less  than  the  maximum  allowed.  For  the  six  years  prior  to 


THE  MINNESOTA  KATE  CASE  657 

the  2-cent  fare  law  the  average  rate  per  passenger  per  mile  for 
intrastate  transportation  in  INIinnesota,  on  the  Northern  Pacific 
line,  had  ranged  from  2.299  cents  in  1901  to  2.435  cents  in  1905, 
2.406  cents  in  1906,  and  2.197  cents  in  1907  ;i  and  during  the 
same  time  the  average  rate  per  passenger  per  mile  for  inter- 
state transportation  in  Minnesota  varied  from  2.075  cents  in  1901, 
2.027  cents  in  1905, 1.949  cents  in  1906,  and  1.981  cents  in  1907.1 
In  the  fiscal  year  ending  June  30, 1908,  with  the  2-cent  fare  law  in 
force  the  average  rate  per  passenger  per  mile  in  Minnesota  was 
1.930  cents  for  mtrastate  and  1.928  cents  for  interstate  carriage. 

It  is  conceded,  however,  that  the  schedules  fixed  for  intrastate 
transportation  "  necessarily  disturbed  the  equilibrium  theretofore 
existing  between  the  rates  on  the  two  classes  of  business  "  (state 
and  interstate)  "on  the  boundary  lines."  Tliis  applies  to  the  rates 
to  and  from  the  cities  situated  on  opposite  sides  of  the  Red  River 
of  the  North,  the  boundary  between  ^Minnesota  and  North  Dakota, 
and  to  and  from  Duluth  and  Superior  on  the  eastern  boundary. 
The  reduction  of  the  state  rates  brought  them  below  the  level 
of  the  mterstate  rates  in  those  mstances  in  which  formerly  both 
had  been  mamtamed  on  a  parity.  So,  also,  whatever  may  be 
said  as  to  the  nonexistence  of  a  general  or  comprehensive  system 
of  equitably  adjusted  rates,  it  is  clear  that  there  are  competitive 
areas  crossed  by  the  state  line  of  INIuuiesota,  and  that  the  state's 
requirements  altered  the  existing  relation  between  state  and 
interstate  rates  as  to  places  within  these  zones  of  competition, 
and  not  merely  as  to  the  cities  on  the  boundary  of  the  state. 

The  situation  is  not  peculiar  to  Mmnesota.  The  same  ques- 
tion has  been  presented  by  the  appeals,  now  before  the  court, 
which  involve  the  validity  of  mtrastate  tariffs  fixed  by  Missouri, 
Arkansas,  Kentucky,  and  Oregon.  Differences  in  particular  facts 
appear,  but  they  camiot  be  regarded  as  controlling.  A  scheme 
of  state  rates  framed  to  avoid  discrimmation  between  localities 
withhi  the  state,  and  to  provide  an  harmonious  system  for  mtra- 
state transportation  throughout  the  state,  naturally  would  embrace 
those  places  within  the  state  which  are  on  or  near  the  state's 

1  The  2-cent  fare  law  was  in  force  for  two  months  of  the  fiscal  year  ending 
June  30,  1907. 


('.")S  JLViLWAi    PKOiJLEMS 

boiuularies ;  and  avIumi  tliese  arc  included  in  n  general  reduction 
of  intranstate  rates,  there  is,  of  course,  a  changi'  in  the  relation 
of  rates  as  theretofore  existing  to  points  adjacent  to,  but  across, 
the  state  line.  Kansas  City,  Kansas,  and  Kansas  ('ity,  Missouri ; 
East  St.  Louis,  Illinois,  and  St.  Louis,  Missouri;  Omaha, Nebraska, 
and  Council  IJlulTs,  Iowa;  Ciiu-innati,  Ohio,  and  Covington  and 
Ne\v[)oi-t,  Kentucky:  and  many  other  places  throughout  the  coun- 
try which  might  be  mentioned,  present  substantially  the  same 
conditions  as  those  here  appearing  with  respect  to  localities  on 
the  boundaries  of  jMinnesota.  It  is  also  a  matter  of  common 
knowledge  that  competition  takes  but  little  account  of  state 
lines,  and  in  every  part  of  the  land  competitive  districts  embrace 
points  in  different  states. 

With  appreciation  of  the  gravity  of  the  controversy,  the  rail- 
road commissioners  of  eight  states  ^  have  filed  their  brief  as 
amici  curice,  in  support  of  the  appeals,  stating  that,  if  the  doc- 
trine of  the  court  below  were  accepted,  the  regulation  by  the 
states  of  rates  for  intrastate  transportation  would  be  practically 
destroyed.  They  say  that  "there  is  practically  no  movement  of 
traftic  betw^een  two  towns  within  a  state  that  does  not  come  into 
competition  with  some  interstate  haul,"  and  that  "  if  the  dis- 
turbance of  the  existing  relation  between  competitive  state  and 
interstate  rates  is  the  correct  criterion,  no  reduction  can  be  made 
in  state  rates  without  interfering  Avith  interstate  commerce." 
The  governors  of  three  states,  pursuant  to  a  resolution  of  a  con- 
ference of  the  governors  of  all  the  states,  have  also  presented, 
by  leave  of  the  court,  their  argument  in  defense  of  the  position 
taken  by  ]\Iinnesota.  They  do  not  seek  "to  belittle  the  effect 
of  the  action  of  Minnesota  on  the  business  between  the  places  " 
named  in  the  findings,  but  they  are  convinced  that  if  the  princi- 
ple announced  by  the  circuit  court  is  upheld,  it  can  be  made  to 
apply  by  a  showing  of  similar  facts  in  virtually  every  state. 
Insisting  that,  under  their  reserved  power,  "the  right  of  the 
states  to  regulate  their  own  commerce  is  as  clear  and  broad  as 
that  of  Congress  to  regulate  interstate  commerce,"  they  assail 

1  Nebraska,  Iowa,  Kansas,  South  Dakota,  North  Dakota,  Oklahoma,  Missouri, 
and  Texas. 


THE  IMINXESOTA  PvATE  CASE  659 

the  decision  below,  not  upon  the  ground  that  it  mcorrectly  sets 
forth  conditions  in  Minnesota  and  adjoinmg  states,  but  for  what 
they  consider  to  be  "  its  plain  disregard  of  the  provisions  of  the 
Federal  Constitution,  which  establish  the  relations  between  the 
nation  and  the  states."  "  The  operation  of  these  provisions," 
they  maintain,  "  was  not  made  to  depend  on  geography  or  con- 
venience or  competition.  They  cannot  apply  in  one  state  and 
not  m  another,  according  to  cu-cumstances  as  they  may  be  found 
by  the  courts,  because  they  are  vital  principles  which  constitute 
the  very  structure  of  our  dual  form  of  government." 

The  controversy  thus  arises  from  opposing  conceptions  of  the 
fundamental  law,  and  of  the  scope  and  effect  of  Federal  legisla- 
tion, rather  than  from  differences  with  respect  to  the  salient  facts. 

For  the  purpose  of  the  present  inquiry,  the  rates  fixed  by  the 
state  must  be  assumed  to  be  reasonable  rates  so  far  as  mtrastate 
traffic  is  concerned ;  that  is,  they  must  be  rates  which  the  state 
in  the  exercise  of  its  legislative  judgment,  could  constitutionally 
fix  for  intrastate  transportation  separately  considered.  If  the 
state  rates  are  not  of  this  character,  — ■  a  question  to  be  dealt 
with  later, — they  cannot  be  sustained  in  any  event ;  but,  assum- 
mg  them  to  be  otherwise  valid,  the  decree  below,  with  respect 
to  the  present  branch  of  the  case,  rests  upon  two  grounds : 
(1)  That  the  action  of  the  state  imposes  a  direct  burden  upon 
interstate  commerce ;  and  (2)  that  it  is  in  conflict  with  the  pro- 
visions of  the  act  to  regulate  commerce. 

These  grounds  are  distinct.  If  a  state  enactment  imposes  a 
direct  burden  upon  interstate  commerce,  it  must  fall  regardless 
of  Federal  legislation.  The  point  of  such  an  objection  is  not  that 
Congress  has  acted,  but  that  the  state  has  directly  restrained  that 
which,  m  the  absence  of  Federal  regulation,  should  be  free.  If 
the  acts  of  Minnesota  constitute  a  direct  burden  upon  interstate 
commerce,  they  would  be  invalid  without  regard  to  the  exercise 
of  Federal  authority  touching  the  interstate  rates  said  to  be  af- 
fected. On  the  other  hand,  if  the  state,  in  the  absence  of  Federal 
legislation,  would  have  had  the  power  to  prescribe  the  rates  here 
assailed,  the  question  remains  whether  its  action  is  void  as  being 
repugnant  to  the  statute  which  Congress  has  enacted. 


C)()0  RAILWAY    rilOIU.KMH 

I'rior  to  the  passage  of  the  aet  to  regulate  commerce,  carriers 
tixed  their  interstate  rates  free  from  the  actual  exertion  of  Federal 
ctintrol ;  and  under  that  act,  as  it  stood  until  the  amendment  of 
June  29,  190(5  [U  Stat,  at  L.  584,  chap.  3591,  U.  S.  Comp. 
Stat.  Supp.  1911,  p.  1288],  the  Interstate  Commerce  Commis- 
sion had  no  power  to  prescribe  interstate  rates.  Interstate  Com- 
merce Commission  v.  Cincinnati,  N.  0.  ^f  T.  P.  R.  Co.  167  U.  S. 
479,  511,  42  L.  ed.  243,  257,  17  Sup.  Ct.  Rep.  89G.i  The  states, 
however,  had  long  exercised  the  power  to  establish  maximum 
rates  for  intrastate  transportation.  Was  this  power,  apart  from 
Federal  action,  subject  to  the  limitation  that  the  state  could  not 
fix  intrastate  rates,  reasonable  as  such,  generally  throughout  the 
state,  but  only  as  to  such  places  and  in  such  circumstances  that 
the  interstate  business  of  the  carriers  would  not  be  thereby  af- 
fected ?  That  is,  was  the  state  debarred  from  fixing  reasonable 
rates  on  traffic,  wholly  internal,  as  to  all  state  points  so  situated 
that,  as  a  practical  consequence,  the  carriers  would  have  to  reduce 
the  rates  they  had  made  to  competing  points  without  the  state, 
in  order  to  mamtain  the  volume  of  their  interstate  business,  or  to 
continue  the  parity  of  rates,  or  the  relation  between  rates  as  it 
had  previously  existed  ?  Was  the  state,  in  prescribing  a  general 
tariff  of  reasonable  intrastate  rates  otherwise  within  its  author- 
ity bound  not  to  go  below  a  minimum  standard  established  by 
the  interstate  rates  made  by  the  carriers  within  competitive  dis- 
tricts ?  If  the  state  power,  independently  of  Federal  legislation, 
is  thus  limited,  the  inquiry  need  proceed  no  further.  Otherwise 
it  must  be  determined  whether  Congress  has  so  acted  as  to  create 
such  a  restriction  upon  the  state  authority  theretofore  existing. 

(1)  The  general  principles  governing  the  exercise  of  state 
authority  when  interstate  commerce  is  affected  are  well  estab- 
lished. The  power  of  Congress  to  regulate  commerce  among  the 
several  states  is  supreme  and  plenary.  It  is  "  complete  in  itself, 
may  be  exercised  to  its  utmost  extent,  and  acknowledges  no 
limitations,  other  than  are  prescribed  in  the  Constitution."  Grih- 
hons  V.  Or/den,  9  Wheat.  1,  196,  6  L.  ed.  23,  70.  The  conviction 
of  its  necessity  sprang  from  the  disastrous  experiences  under  the 
1  P.  187,  supra,  and  Ripley's  Railroads:  Rates  and  Regulation. 


THE  MINNESOTA  RATE   CASE  6(Jl 

Confederation,  when  the  states  vied  in  discriminatory  measures 
against  each  other.  In  order  to  end  these  evils,  the  grant  in  the 
Constitution  conferred  upon  Congress  an  authority  at  all  times 
adequate  to  secure  the  freedom  of  interstate  connnercial  mter- 
course  from  state  control,  and  to  provide  effective  regulation  of 
that  intercourse  as  the  national  interest  may  demand.  The  words 
"  among  the  several  states  "  distinguish  between  the  conniierce 
which  concerns  more  states  than  one,  and  that  commerce  which 
is  confined  within  one  state  and  does  not  affect  other  states. 
"  The  genius  and  character  of  the  whole  government,"  said  Chief 
Justice  Marshall,  "  seems  to  be,  that  its  action  is  to  be  applied  to 
all  the  external  concerns  of  the  nation,  and  to  those  internal  con- 
cerns which  affect  the  states  generally ;  but  not  to  those  which 
are  completely  within  a  particular  state,  which  do  not  affect 
other  states,  and  with  which  it  is  not  necessary  to  interfere,  for 
the  purpose  of  executhig  some  of  the  general  powers  of  the  gov- 
ernment. The  completely  internal  commerce  of  a  state,  then,  may 
be  considered  as  reserved  for  the  state  itself."  Id.  p.  195.  This 
reservation  to  the  states  manifestly  is  only  of  that  authority 
which  is  consistent  with,  and  not  opposed  to,  the  grant  to  Con- 
gress. There  is  no  room  in  our  scheme  of  government  for  the 
assertion  of  state  power  in  hostility  to  the  authorized  exercise 
of  Federal  power.  The  authority  of  Congress  extends  to  every 
part  of  interstate  commerce,  and  to  every  instrumentality  or 
agency  by  which  it  is  carried  on ;  and  the  full  control  by  C'on- 
gress  of  the  subjects  committed  to  its  regulation  is  not  to  be 
denied  or  thwarted  by  the  commingling  of  interstate  and  intra- 
state operations.  This  is  not  to  say  that  the  nation  may  deal 
with  the  internal  concerns  of  the  state,  as  such,  but  that  the 
execution  by  Congress  of  its  constitutional  power  to  regulate 
interstate  commerce  is  not  limited  by  the  fact  that  intrastate 
transactions  may  have  become  so  interwoven  therewith  that  the 
effective  government  of  the  former  incidentally  controls  the 
latter.  This  conclusion  necessarily  results  from  the  supremacy 
of  the  national  power  within  its  appointed  sphere.  .  .  . 

The  grant  in  the  Constitution  of  its  own  force,  that  is,  with- 
out action  by  Congress,  established  the  essential  immunity  of 


602  IJAILWAV    TKor.LKAIS 

interstate  cominereial  intereouvse  from  the  direct  control  of  the 
states  with  res[)ect  to  those  snbjects  embraced  within  the  grant 
which  are  of  snch  a  nature  as  to  demand  that,  if  regulated  at  all, 
their  regulation  sliould  be  prescribed  by  a  single  authority.  It  has 
repeatedly  been  declared  by  this  court  that  as  to  those  subjects 
w'hicli  require  a  general  system  ov  unil'ormity  of  regulation,  the 
power  of  Congress  is  exclusive.  In  other  matters,  admitting  of 
diversity  of  treatment  according  to  the  special  requirements 
of  local  conditions,  the  states  may  act  within  their  respective 
jurisdictions  until  Congress  sees  lit  to  act ;  and,  when  Congress 
does  act,  the  exercise  of  its  authority  overrides  all  conflicting 
state  legislation.  ... 

The  principle  which  determines  this  classification  underlies  the 
doctrine  that  tlie  states  cannot,  under  any  guise,  impose  direct 
burdens  upon  interstate  commerce.  For  this  is  but  to  hold  that 
the  states  are  not  permitted  directly  to  regulate  or  restrain  that 
which,  from  its  nature,  should  be  under  the  control  of  the  one 
authority,  and  be  free  from  restriction,  save  as  it  is  governed  in 
the  manner  that  the  national  legislature  constitutionally  ordains. 

Thus,  the  states  cannot  tax  interstate  commerce,  either  by 
laying  the  tax  upon  the  business  which  constitutes  such  com- 
merce or  the  privilege  of  engaging  in  it,  or  upon  the  receipts,  as 
such,  derived  from  it.  .  .  . 

They  have  no  power  to  prohibit  interstate  trade  in  legitimate 
articles  of  commerce  ...  or  to  discriminate  against  the  products 
of  other  states  ...  or  to  exclude  from  the  limits  of  the  state  cor- 
porations or  others  engaged  in  interstate  commerce,  or  to  fetter 
by  conditions  their  right  to  carry  it  on  .  .  .  or  to  prescribe  the 
rates  to  be  charged  for  transportation  from  one  state  to  another, 
or  to  subject  the  operations  of  carriers  in  the  course  of  such 
transportation  to  requirements  that  are  unreasonable  or  pass 
beyond  the  bounds  of  suitable  local  protection.  .  .  . 

But  within  these  limitations  there  necessarily  remains  to  the 
states  until  Congress  acts,  a  wide  range  for  the  permissible  ex- 
ercise of  power  appropriate  to  their  territorial  jurisdiction  al- 
though interstate  commerce  may  be  affected.  It  extends  to  those 
matters  of  a  local  nature  as  to  which  it  is  impossible  to  derive 


THE  IVIIXNESOTA  HATE  CASE  663 

from  the  constitutional  grant  an  intention  that  they  should  go 
uncontrolled  pending  Federal  intervention.  Thus,  there  are  cer- 
tain subjects  having  the  most  obvious  and  du-ect  relation  to 
interstate  commerce,  which  nevertheless,  with  the  acquiescence 
of  Congress,  have  been  controlled  by  state  legislation  from  the 
foundation  of  the  government  because  of  the  necessity  that  they 
should  not  remain  unregulated,  and  that  their  regulation  should 
be  adapted  to  varying  local  exigencies ;  hence,  the  absence  of 
regulation  by  Congress  in  such  matters  has  not  imported  that 
there  should  be  no  restriction,  but  rather  tliat  tlie  states  should 
continue  to  supply  the  needed  rules  until  Congress  should  decide 
to  supersede  them.  Further,  it  is  competent  for  a  state  to  govern 
its  internal  commerce,  to  provide  local  improvements,  to  create 
and  regulate  local  facilities,  to  adopt  protective  measures  of  a 
reasonable  character  in  the  interest  of  the  health,  safety,  morals, 
and  welfare  of  its  people,  although  interstate  commerce  may 
incidentally  or  indirectly  be  involved.  Our  system  of  govern- 
ment is  a  practical  adjustment  by  which  the  national  authority 
as  conferred  by  the  Constitution  is  maintained  in  its  full  scope 
without  unnecessary  loss  of  local  efficiency.  Where  the  subject 
is  peculiarly  one  of  local  concern,  and  from  its  nature  belongs 
to  the  class  with  which  the  state  appropriately  deals  in  making 
reasonable  provision  for  local  needs,  it  cannot  be  regarded  as 
left  to  the  unrestrained  will  of  individuals  because  Congress 
has  not  acted,  although  it  may  have  such  a  relation  to  interstate 
commerce  as  to  be  within  the  reach  of  the  Federal  power.  In 
such  case,  Congress  must  be  the  judge  of  the  necessity  of  Fed- 
eral action.  Its  paramount  authority  always  enables  it  to  inter- 
vene at  its  discretion  for  the  complete  and  effective  government  of 
that  which  has  been  committed  to  its  care,  and,  for  this  purpose 
and  to  this  extent,  in  response  to  a  conviction  of  national  need,  to 
displace  local  laws  by  substituting  laws  of  its  own.  The  successful 
working  of  our  constitutional  system  has  thus  been  made  possible. 
The  leading  illustrations  may  be  noted.  Immediately  upon 
the  adoption  of  the  Constitution,  Congress  recognized  the  pro- 
priety of  local  action  with  respect  to  pilotage,  in  view  of  the 
local  necessities  of  navigation.  ...    It  was  sixty  years  before 


IU)4  KAILWAV    I'Kor.LEMS 

provision  for  F(Mlenil  license  of  pilots  was  made  (act  of  Angust 
30,  lSo2,  ehap.  lOii,  10  Stat,  at  L.  (>1),  and  even  then  port  pilots 
were  not  included.  .  .  . 

A  state  is  entitled  to  protect  its  coasts,  to  improve  its  harbors, 
bays,  and  streams,  and  to  construct  dams  and  bridges  across 
navigable  rivers  within  its  limits,  unless  there  is  conflict  with 
some  act  of  Congress.  Plainl)-,  in  the  case  of  dams  and  bridges, 
interference  with  the  accustomed  right  of  navigation  may  result. 
But  this  exercise  of  the  important  power  to  provide  local  improve- 
ments has  not  been  regarded  as  constituting  such  a  direct  burden 
upon  intercourse  or  interchange  of  traffic  as  to  be  repugnant  to 
the  Federal  authority  in  its  dormant  state.  .  .  . 

While  the  state  may  not  impose  a  duty  of  tonnage  ...  it  may 
regulate  wharfage  charges  and  exact  tolls  for  the  use  of  artificial 
facilities  provided  under  its  authority.  The  subject  is  one  under 
state  control,  where  Congress  has  not  acted,  although  the  pay- 
ment is  requu'ed  of  those  engaged  in  uiterstate  or  foreign 
commerce.  .  .  . 

Quarantine  regulations  are  essential  measures  of  protection 
which  the  states  are  free  to  adopt  when  they  do  not  come  into 
conflict  with  Federal  action.  In  view  of  the  need  of  conforming 
such  measures  to  local  conditions.  Congress  from  the  beginnmg 
has  been  content  to  leave  the  matter  for  the  most  part,  notwith- 
standing its  vast  importance,  to  the  states,  and  has  repeatedly 
acquiesced  in  the  enforcement  of  state  laws.  .  .  . 

State  inspection  laws  and  statutes  designed  to  safeguard  the 
inliabitants  of  a  state  from  fraud  and  imposition  are  valid  when 
reasonable  in  their  requirements,  and  not  in  conflict  with  Federal 
rules,  although  they  may  affect  interstate  commerce  in  their  rela- 
tion to  articles  prepared  for  export,  or  by  including  mcidentally 
those  brought  into  the  state  and  held  for  sale  in  the  original 
imported  packages.  .  .  . 

*****  *** 

...  It  has  also  been  held  that  the  state  has  the  power  to  for- 
bid the  consolidation  of  state  railroad  corporations  with  competing 
lines  although  both  may  be  interstate  carriers,  and  the  prohibition 
may  have  a  far-reaching  effect  upon  interstate  commerce.  .  .  . 


THE  MINNESOTA  KATE  CASE  665 

Again,  it  is  manifest  that  when  the  legislation  of  the  state  is 
limited  to  internal  commerce  to  such  degree  that  it  does  not 
include  even  incidentally  the  subjects  of  interstate  commerce,  it 
is  not  rendered  invalid  because  it  may  affect  the  latter  commerce 
indirectly.  In  the  intimacy  of  commercial  relations,  much  that  is 
done  in  the  superintendence  of  local  matters  may  have  an  mdi- 
rect  bearing  upon  interstate  commerce.  The  development  of  local 
resources  and  the  extension  of  local  facilities  may  have  a  very 
important  effect  upon  communities  less  favored,  and  to  an  appre- 
ciable degree  alter  the  course  of  trade.  The  freedom  of  local  trade 
may  stimulate  interstate  commerce,  while  restrictive  measures 
within  the  police  power  of  the  state,  enacted  exclusively  with  re- 
spect to  internal  busmess,  as  distmguished  from  interstate  traffic, 
may  in  their  reflex  or  indirect  influence  diminish  the  latter  and  re- 
duce the  volume  of  articles  transported  into  or  out  of  the  state. . . . 

Within  the  state  power,  then,  in  the  words  of  Chief  Justice 
INIarshall,  is 

that  immense  mass  of  legislation  which  embraces  everything  within  the 
territory  of  a  state,  not  surrendered  to  the  general  government ;  all  which 
can  be  most  advantageously  exercised  by  the  states  themselves.  Inspection 
laws,  quarantine  laws,  health  laws  of  every  description,  as  well  as  laws  for 
regulating  the  internal  commerce  of  a  state,  and  those  which  respect  turn- 
pike roads,  ferries,  etc.,  are  component  parts  of  this  mass.  No  direct  general 
jiower  over  these  ol)jects  is  granted  to  Congress :  and,  consequently,  they 
remain  subject  to  state  legislation.  If  the  legislative  power  of  the  Union 
can  reach  them,  it  must  be  for  national  purposes ;  it  must  be  where  the 
power  is  expressly  given  for  a  special  purpose,  or  is  clearly  incidental  to 
some  power  which  is  expressly  given.  Gibbons  v.  Ogden,  9  Wheat.  203,  204, 
6  L.  ed.  71,  72. 

And  whenever,  as  to  such  matters,  under  these  established 
principles.  Congress  may  be  entitled  to  act,  by  virtue  of  its  power 
to  secure  the  complete  government  of  mterstate  commerce,  the 
state  power  nevertheless  continues  until  Congress  does  act  and 
by  its  valid  interposition  limits  the  exercise  of  the  local  authority. 

(2)  These  principles  apply  to  the  authority  of  the  state  to 
prescribe  reasonable  maximum  rates  for  intrastate  transportation. 

State  regulation  of  railroad  rates  began  with  railroad  transpor- 
tation.   The  raili'oads  were  chartered  by  the  states,  and  from  the 


LH)6  KAILWAV    rUDDLEMS 

outset,  in  many  charters,  nuiximuiu  rates  for  freight  or  passengers, 
or  both,  were  prescribed.  Frequently  —  and  this  became  the 
more  general  practice  —  the  board  of  directors  was  permitted  to 
fix  charges  in  its  discretion,  —  an  authority  which,  in  numerous 
instances,  Avas  made  subject  to  a  limitation  upon  the  amount  of 
net  earnings.  In  several  states  maximum  rates  were  also  estab- 
lished, or  the  power  to  alter  rates  was  expressly  reserved,  by 
general  laws.  In  1853,  tlie  state  of  New  York  fixed  the  maximum 
fare  for  way  passengers  on  the  raiboads  forming  the  line  of  the 
New  York  Central  at  2  cents  a  mile  (Laws  of  1853,  chap.  76, 
§  7),  and  this  rate  extending  to  Buffalo  and  Suspension  Bridge, 
on  the  boundary  of  the  state,  has  continued  to  the  present  day 
(Consol.  Laws  [N.  Y.]  chap.  49,  §  57).  As  a  rule  the  restric- 
tions imposed  by  the  early  legislation  were  far  from  onerous,  but 
they  are  significant  in  the  assertion  of  the  right  of  control.  More 
potent  than  these  provisions,  in  the  actual  effect  upon  railroad 
tariffs,  was  the  state  canal.  It  is  a  matter  of  common  knowledge 
that  the  trafiic  on  the  trunk  lines  from  the  Atlantic  seaboard  to 
the  West  was  developed  in  competition  with  the  Erie  canal,  built, 
maintamed,  and  regulated  by  the  state  of  New  York  to  promote 
its  commerce. 

The  authority  of  the  state  to  limit  by  legislation  the  charges 
of  common  carriers  within  its  borders  was  not  confined  to  the 
power  to  impose  limitations  m  connection  witli  grants  of  corpo- 
rate privileges.  In  view  of  the  nature  of  their  business,  they  were 
held  subject  to  legislative  control  as  to  the  amount  of  their 
charges  unless  they  were  protected  by  their  contract  with  the 
state.  .  .  .  The  question  was  presented  by  acts  of  the  legislatures 
of  Illinois,  Iowa,  Wisconsin,  and  Minnesota,  passed  in  the  years 
1871  and  1874,  in  response  to  a  general  movement  for  a  reduc- 
tion of  rates.  The  section  of  the  country  in  which  the  demand 
arose  was  to  a  large  degree  homogeneous  and  one  in  which  the 
flow  of  commerce  was  only  slightly  concerned  with  state  Imes. 
But  resort  was  had  to  the  states  for  relief.  In  the  Munn  Case, 
the  court  had  before  it  the  statute  of  Illinois  governmg  the  grain 
warehouses  in  Chicago.  Through  these  elevators,  located  with 
the  river  harbor  on  the  one  side  and  the  railway  tracks  on  the 


THE  MINNESOTA  RATE  CASE  667 

other,  it  was  necessary,  according  to  the  course  of  trade,  for  the 
product  of  seven  or  eight  states  of  the  West  to  pass  on  its  way 
to  the  states  on  the  Atlantic  coast.  In  addition  to  the  denial  of 
any  legislative  authority  to  limit  charges  it  was  urged  that  the 
act  was  repugnant  to  the  exclusive  power  of  Congress  to  regulate 
interstate  commerce.  The  court  answered  that  the  business  was 
carried  on  exclusively  withm  the  limits  of  the  state  of  Illinois, 
that  its  regulation  was  a  thing  of  domestic  concern,  and  that 
"  certainly,  until  Congress  acts  in  reference  to  their  interstate 
relations,  the  state  may  exercise  all  the  powers  of  government 
over  them,  even  though  in  so  domg  it  may  mdu*ectly  operate 
upon  commerce  outside  its  immediate  jurisdiction."  In  the  de- 
cision of  the  railroad  cases,  above  cited,  the  same  opmion  was 
expressed.  The  language  of  the  court,  however,  went  further 
than  to  sustain  the  state  law  with  respect  to  rates  for  purely 
mtrastate  carriage.  Thus,  the  act  of  Wisconsin  covered  traffic 
which  started  within  the  state  and  was  destined  to  points  outside, 
and  this  was  treated  as  being  withm  the  state  power  {Peik  v. 
Cliicago  ^  K  W.  B.  Co.  94  U.  S.  164,  177,  178,  24  L.  ed.  97- 
99),  a  view  which  was  later  repudiated  ( Wabash,  St.  L.  ^  P.  R. 
Co.  V.  Illinois,  118  U.  S.  557,  30  L.  ed.  244,  1  Inters.  Com.  Rep. 
31,  7  Sup.  Ct.  Rep.  4). 

It  became  a  frequent  practice  for  the  states  to  create  commis- 
sions, as  agencies  of  state  supervision  and  regulation,  and  in 
many  mstances  the  rate-making  power  was  conferred  upon  these 
bodies.  A  summary  of  such  legislation  is  given  in  Interstate 
Commerce  Commission  v.  Cincinnati  N.  0.  c^  T.  P.  R.  Co.  167  U.  S. 
479,  495,  496,  42  L.  ed.  243,  251,  252,  17  Sup.  Ct.  Rep.  896. 
One  of  these  state  laws,  that  of  Mississippi,  passed  in  1884,  came 
under  review  in  Stone  v.  Farmers'  Loan  cj-  Trust  Co.  116  U.  S. 
307,  29  L.  ed.  636,  6  Sup.  Ct.  Eep.  334,  388,  1191.  The  suit 
was  brought  to  enjoin  the  railroad  commission  from  enforcing  the 
statute  against  the  Mobile  &  Ohio  Railroad  Company.  It  had 
been  mcorporated  in  the  states  of  Alabama,  Mississippi,  Tennes- 
see, and  Kentucky,  for  the  purpose  of  constructing  a  railroad 
from  Mobile  to  som(3  point  near  the  mouth  of  the  Ohio  river, 
where  it  would  connect  with  another  railroad,  thus  forming  a 


()()8  KAII.WAV    l»l{()r>LEMS 

continuous  line  of  interstate  connnunicatiou  between  the  Gulf  of 
Mexico  and  the  (xreat  Lakes.  The  connnission  as  yet  had  not 
acted.  Sustaining  the  state  power  to  fix  rates  upon  the  traffic 
wholly  internal,  the  court  directed  the  dismissal  of  the  bill.  The 
state,  said  the  court,  "  may  beyond  all  question,  by  tlie  settled 
rule  of  decision  in  this  court,  regulate  freights  and  fares  for 
business  done  exclusively  within  the  state,  and  it  would  seem  to 
be  a  matter  of  domestic  concern  to  prevent  the  company  from 
discriminating  against  persons  and  places  in  Mississippi."  In  the 
same  case,  it  was  declared  that  the  power  of  regulation  was  not 
a  power  to  confiscate  ;  and  that  under  pretense  of  regulating  fares 
and  freights,  the  states  could  not  "  require  a  railroad  corporation 
to  carry  persons  or  property  without  reward,"  or  do  that  which  in 
law  amounted  "  to  a  taking  of  private  property  for  public  use  with- 
out just  compensation,  or  without  due  process  of  law."  Id.  p.  331. 

In  Wabash  St.  L.  ^  P.  R.  Co.  v.  Illinois,  supra.,  it  was  finally 
determined  that  the  authority  of  the  state  did  not  extend  to  the 
regulation  of  charges  for  interstate  transportation.  There  the 
state  statute  was  aimed  at  discrimination.  It  was  said  to  have 
been  violated  by  the  railroad  company  in  the  case  of  shipments 
from  points  within  Illinois  to  the  city  of  New  York.  The  state 
court  had  construed  the  statute  to  be  binding  as  to  that  part  of 
the  interstate  haul  which  was  within  the  state,  although  inopera- 
tive beyond  the  boundary.  So  applied,  this  court  held  the  act 
to  be  invalid. 

But  no  doubt  was  entertained  of  the  state's  authority  to  regu- 
late rates  for  transportation  that  was  wholly  mtrastate.  And,  iii 
illustrating  the  extent  of  state  power  (118  U.  S.  p.  564),  the 
court  selected  transportation  across  the  state  from  Cairo  to 
Chicago  and  from  Chicago  to  Alton,  all  boundary  points  consti- 
tuting unportant  centers  of  commerce — the  one  on  Lake  Michigan, 
and  the  others  at  the  confluence  of  the  Mississippi  and  Ohio  rivers, 
and  of  the  Mississippi  and  Missouri  rivers,  respectively.  After 
reviewing  decisions  iiolding  state  laws  to  be  ineffective  which 
imposed  a  direct  burden  upon  interstate  commerce  .  .  .  the  court 
emphasized  the  distinction  with  respect  to  the  operation  of  the 
statute  upon  domestic  transactions,  saying: 


THE  MINNESOTA  P.ATE  CASE  669 

Of  the  justice  or  propriety  of  the  principle  which  lies  at  the  foundation  of 
the  Illinois  statute  it  is  not  the  province  of  this  court  to  speak.  As  re- 
stricted to  a  transportation  which  begins  and  ends  within  the  limits  of  the 
state,  it  may  be  very  just  and  e(|uitable,  and  it  certainly  is  the  province  of 
the  state  legislature  to  determine  that  ([uestion.    LI.  p.  577. 

The  doctrine  was  thus  fully  established  that  the  state  could 
not  prescribe  interstate  rates,  but  could  fix  reasonable  intrastate 
rates  tlu'oughout  its  territory.  The  extension  of  railroad  facilities 
has  been  accompanied  at  every  step  by  the  assertion  of  this 
authority  on  the  part  of  the  states  and  its  invariable  recognition 
by  this  court.  It  has  never  been  doubted  that  the  state  could,  if 
it  saw  fit,  build  its  own  liighways,  canals  and  railroads.  Baltimore 
^  0.  R.  Co.  V.  Maruland,  21  Wall.  456,  470,  471,  22  L.  ed.  678, 
683,  684.  It  could  build  railroads  traversing  the  entire  state, 
and  thus  join  its  border  cities  and  commercial  centers  by  new 
highways  of  internal  intercourse,  to  be  always  available  upon 
reasonable  terms.  Such  provision  for  local  traffic  might  indeed 
alter  relative  advantages  in  competition,  and,  by  virtue  of  eco- 
nomic forces,  those  engaged  in  interstate  trade  and  transportation 
might  find  it  necessary  to  make  readjustments  extending  from 
market  to  market  through  a  wide  sphere  of  influence ;  but  such 
action  of  the  state  would  not  for  that  reason  be  regarded  as 
creating  a  direct  restraint  upon  interstate  commerce,  and  as  thus 
transcending  the  state  power.  Similarly,  the  authority  of  the 
state  to  prescribe  what  shall  be  reasonable  charges  of  common 
carriers  for  interstate  transportation,  unless  it  be  limited  by  the 
exertion  of  the  constitutional  power  of  Congress,  is  state-wide. 
As  a  power  appropriate  to  the  territorial  jurisdiction  of  the  state, 
it  is  not  confined  to  a  part  of  the  state,  but  extends  tln-oughout 
the  state,  —  to  its  cities  adjacent  to  its  boundaries  as  well  as  to 
those  in  the  interior  of  the  state.  To  say  that  this  power  exists, 
but  that  it  may  be  exercised  only  in  prescribing  rates  that  are  on 
an  equal  or  higher  basis  than  those  that  are  fixed  by  the  carrier 
for  interstate  transportation,  is  to  maintain  the  power  in  name 
while  denying  it  in  fact.  It  is  to  assert  that  the  exercise  of  the 
legislative  judgment  in  determining  what  shall  be  the  carrier's 
charge  for  the  intrastate  service  is  itself  subject  to  the  carrier's 


G70  KA11.\VA\     l'K(»l!LE.M.S 

will.  Hut  this  .state-wi<lo  aiitliority  controls  the  carrier,  and  is 
not  coutrollcHl  by  it ;  and  the  idea  that  the  pt)wer  of  the  state  to 
fix  reasonable  rates  for  its  internal  traffic  is  limited  by  the  mere 
action  of  the  carrier  in  laying  an  interstate  rate  to  places  across 
the  state's  border  is  foreign  to  our  jurisprudence. 

If  this  autlioril y  of  the  state  be  restricted,  it  must  be  by  virtue 
of  the  [)araniount  power  of  Congress  over  hiterstate  connnerce 
and  its  instruments;  and,  in  view  of  the  nature  of  the  subject,  a 
limitation  may  not  be  implied  because  of  a  dormant  Federal 
power ;  that  is,  one  which  has  not  been  exerted,  but  can  only  be 
found  in  the  actual  exercise  of  Federal  control  in  such  measure 
as  to  exclude  this  action  by  the  state  which  otherwise  would 
clearly  be  within  its  province. 

(3)  When  Congress,  ui  the  year  1887,  enacted  the  act  to  regu- 
late commerce  (24  Stat,  at  L.  379,  chap.  104,  U.  S.  Comp.  Stat. 
Supp.  1911,  p.  1284),  it  was  acquainted  with  the  course  of  the 
development  of  railroad  transportation  and  with  the  exercise  by 
the  states  of  the  rate-making  power.  An  elaborate  report  had 
been  made  to  the  Senate  by  a  committee  authorized  to  investigate 
the  subject  of  railroad  regulation,  in  which  the  nature  and  extent 
of  state  legislation,  including  the  commission  plan,  were  fully 
reviewed  (Senate  Report  46,  submitted  January  6,  1880,  49th 
Congress,  1st  session).  And  it  was  the  fact  that  beyond  the 
bounds  of  state  control  there  lay  a  vast  field  of  unregulated 
activity  in  the  conduct  of  interstate  transportation  which  was 
found  to  be  the  chief  cause  of  tlie  demand  for  Federal  action. 

Congress  carefully  defined  the  scope  of  its  regulation,  and 
expressly  provided  that  it  was  not  to  extend  to  purely  intrastate 
traffic.  In  the  1st  section  of  the  act  to  regulate  commerce  there 
was  inserted  the  following  proviso : 

Provided,  however,  That  the  provisions  of  this  act  shall  not  apply  to  the 
transportation  of  passengers  or  property,  or  to  the  receiving,  delivering, 
storage,  or  handling  of  property,  wholly  within  one  state,  and  not  shipped 
to  or  from  a  foreign  country,  from  or  to  any  state  or  territory  as  aforesaid. 

When  in  the  year  1906  (act  of  June  29,  1906,  chap.  3591, 
34  Stat,  at  L.  584,  U.  S.  Comp.  Stat.  Supp.  1911,  p.  1288), 
Congress  amended  the  act  so  as  to  confer  upon  the  Federal 


THE  MINNESOTA  RATE  CASE  671 

commission  power  to  prescribe  maximum  interstate  rates,  the 
proviso  in  §  1  was  reenacted.  Again,  in  1910,  when  the  act  was 
extended  to  embrace  telegraph,  telephone,  and  cable  companies 
engaged  in  interstate  business,  the  proviso  was  once  more  re- 
enacted,  with  an  additional  clause  so  as  to  exclude  intrastate 
messages  from  the  operation  of  the  statute.    {Act  of  June  18, 

1910,  chap.  309,  36  Stat,  at  L.  545  [U.  S.  Comp.  Stat.  Supp. 

1911,  p.  1285].)    The  proviso  in  its  present  form  reads: 

Provided,  however,  That  the  provisions  of  this  act  shall  not  apply  to  the 
transportation  of  passengers  or  property,  or  to  the  receiving,  delivering, 
storage,  or  handling  of  property  wholly  within  one  state,  and  not  shipped 
to  or  from  a  foreign  country,  from  or  to  any  state  or  territory  as  aforesaid, 
nor  shall  they  apply  to  the  transmission  of  messages  by  telephone,  telegraph, 
or  cable  wholly  within  one  state,  and  not  transmitted  to  or  from  a  foreign 
country,  from  or  to  any  state  or  territory,  as  aforesaid. 

There  was  thus  excluded  from  the  provisions  of  the  act  that 
transportation  which  was  "wholly  within  one  state,"  with  the 
*  specified  qualification  where  its  subject  was  going  to  or  coming 
from  a  foreign  country. 

It  is  urged,  however,  that  the  words  of  the  proviso  are  sus- 
ceptible of  a  construction  which  would  permit  the  provisions  of 
§  3  of  the  act,  prohibiting  carriers  from  giving  an  undue  or  un- 
reasonable preference  or  advantage  to  any  locality,  to  apply  to 
unreasonable  discrimination  Ijetween  localities  m  different  states, 
as  well  when  arising  from  an  intrastate  rate  as  compared  with  an 
interstate  rate  as  when  due  to  interstate  rates  exclusively.  If  it 
be  assumed  that  the  statute  should  be  so  construed  (and  it  is  not 
necessary  now  to  decide  the  point),  it  would  inevitably  follow 
that  the  controlling  principle  governing  the  enforcement  of  the 
act  should  be  applied  to  such  cases  as  might  thereby  be  brought 
within  its  purview ;  and  the  question  whether  the  carrier,  in  such 
a  case,  was  giving  an  undue  or  unreasonable  preference  or  ad- 
vantage to  one  locality  as  against  another,  or  subjecting  any 
locality  to  an  undue  or  unreasonable  prejudice  or  disadvantage, 
would  be  primarily  for  the  investigation  and  determination  of  the 
Interstate  Commerce  Commission,  and  not  for  the  courts.  The 
dominating  purpose  of  the  statute  was  to  secure  conformity  to 


(i7'J  i;  A 1 1. WW    im;(>i;i,kms 

the  pi'i'sciilu'il  standards  tliroii^h  tlic  cxainiiial  ion  and  appi'cci- 
ation  ol'  the  {■onipK'X  lads  of  tiansporlation  by  tlu'  body  cn'ated 
t\ir  that  piir[)Osi' ;  and,  as  this  coni-t  has  repeatedly  heUl,  it  would 
be  destriu'tive  of  the  systi'm  ol'  regulation  delined  by  the  statute  if 
the  eourt,  witliout  the  preliminary  ai-tion  ol'  the  Coinniissiou,  were 
to  undertake  to  pass  upttn  tlu'  adniiuistrative  (juestious  vvhieh 
the  statute  has  primarily  contided  to  it.  .  .  .  In  the  present  case 
there  has  been  no  iiudinj;'  by  the  Interstate  Connnerce  Connnis- 
sion  of  unjust  diseriniiuation  violative  of  the  aet;  and  no  aetion 
of  that  body  is  before  us  for  review. 

The  question  we  have  now  before  us,  essentially,  is  whether, 
after  the  passage  of  the  interstate  eommeree  act,  and  its  amend- 
ment, the  state  conthiued  to  i)ossess  the  state-wide  authority  which 
it  formerly  enjo3'ed  to  prescribe  reasonable  rates  for  its  exclu- 
sively internal  traffic.  That,  as  it  plainly  appears,  was  the  nature 
of  the  action  taken  by  Minnesota,  and  the  attack,  however  phrased, 
upon  the  rates  here  hivolved  as  an  interference  with  interstate 
connnerce,  is  in  substance  a  denial  of  that  authority. 

Having  regard  to  tlu;  terms  of  the  Federal  statute,  the  familiar 
range  of  state  ac^tion  at  the  time  it  was  enacted,  the  continued 
exercise  of  state  autliority  in  the  same  manner  and  to  the  same 
extent  after  its  enactment,  and  the  decisions  of  this  court,  recog- 
nizing and  upholding  this  authority,  we  find  no  foundation  for 
the  proposition  that  the  act  to  regulate  connnerce  contemplated 
interference  therewith. 

Congress  did  not  undertake  to  say  that  the  intrastate  rates  of 
interstate  carriers  should  be  reasonable,  or  to  invest  its  adminis- 
trative agency  with  authority  to  determine  their  reasonableness. 
Neither  by  the  original  act  nor  by  its  amendment  did  Congress 
seek  to  establish  a  unified  control  over  interstate  and  intrastate 
rates  ;  it  did  not  set  up  a  standard  for  interstate  rates,  or  prescribe, 
or  authorize  the  connnission  to  prescribe,  either  maximum  or  mmi- 
mum  rates  for  intrastate  traffic.  It  cainiot  be  suj)})osed  that  Con- 
gress sought  to  accomplish  ])y  indirection  that  which  it  expressly 
disclaimed,  or  attempted  to  override  the  accustomed  authority  of 
the  states  without  the  provision  of  a  suljstitute.  On  the  contrary, 
':he  fixing  of  reasonal)le  rates  for  intrastate  transportation  was 


THE  MIXXESOTA  RATE  CASE  673 

left  where  it  had  been  found ;  that  is,  with  the  states  and  the 
agencies  created  by  tlie  states  to  deal  with  that  subject.  Missouri 
P.  R.  Co.  V.  Larahee  Flour  Mills  Co.  211  U.  S.  612,  620,  621, 
53  L.  ed.  352,  359,  360,  29  Sup.  Ct.  Rep.  214. 

How  clear  was  the  purpose  not  to  occupy  the  field  thus  left 
to  the  exercise  of  state  power  is  shown  by  the  clause  uniformly 
inserted  in  the  numerous  acts  passed  by  Congress  to  authorize 
the  construction  of  railways  across  the  Indian  territory.  This 
clause,  while  fixing  a  maximum  passenger  rate,  made  the  laws 
of  an  adjoining  state  (in  some  cases  Arkansas,  in  others  Texas, 
and  in  others  Kansas)  applicable  to  the  freight  rates  to  be  charged 
within  the  territory  ;  and  while  the  right  to  regulate  rates  on  the 
authorized  line  of  railroad  was  reserved  to  Congress  until  a  state 
government  should  be  established,  it  was  expressly  provided  that, 
when  established,  the  state  should  be  entitled  to  fix  rates  for 
intrastate  transportation,  —  the  right  remaming  with  Congress 
to  prescribe  rates  for  such  transportation  as  should  be  interstate. 
Within  a  month  after  the  act  to  regulate  commerce  was  enacted, 
two  acts  were  passed  by  Congress  for  tliis  purpose  with  respect 
to  railways  extending  across  the  territory  from  the  Texas  to  the 
Kansas  boundary.  The  provision  —  in  both  cases  in  identical  lan- 
guage, save  that  the  one  referred  to  the  laws  of  Texas  and  the 
other  to  the  laws  of  Kansas  — was  as  follows  (act  of  February 
24,  1887,  chap.  254,  §  4,  24  Stat,  at  L.  420 ;  act  of  March  2, 
1887,  chap.  319,  §  4,  24  Stat,  at  L.  447) : 

Sec.  4.  That  said  railroad  company  shall  not  charge  the  inhabitants  of 
said  territory  a  greater  rate  of  freight  than  the  rate  authorized  by  tlie  laws 
of  the  state  of  Texas  for  services  or  transportation  of  the  same  kind  :  Pro- 
vided, That  passenger  rates  on  said  railway  shall  not  exceed  three  cents 
per  mile.  Congress  kereby  reserves  the  right  to  regulate  the  charges  for 
freight  and  passengers  on  said  railway,  and  messages  on  said  telegraph  and 
telephone  lines,  until  a  state  government  or  governments  shall  exist  in  said 
territory  within  the  limits  of  which  said  railway,  or  a  part  thereof,  shall  he 
located;  and  then  such  state  government  or  governments  shall  be  authorized 
to  fx  and  regulate  the  cost  of  transportation  of  persons  and  freights  within  their 
respective  limits  by  said  raibray ;  but  Congress  expressly  reserves  the  right 
to  fix  and  regulate  at  all  times  the  cost  of  such  transportation  by  said  rail- 
way or  said  comi)any  wlienever  such  transportation  shall  extend  from  one 
state  into  another,  or  shall  extend  into  more  than  one  state :    Provided, 


074  KAILWAV    rUOP.LKMS 

liowi'vor,  Tluit  tlu'  niti'  of  sm-li  transiiorUition  of  passengers,  local  or  iiiter- 
state,  sliall  not  oxceed  the  rate  above  ex[iresse(l :  And  jjrovided  fiirtlier, 
Tliat  said  railway  company  sliall  carry  the  mail  at  such  }>rices  as  Congress 
may  by  law  provide;  and  until  such  rate  is  fixed  by  law,  the  I'ostnuister 
(leneral  may  tix  the  rate  of  com]ieHsati()n. 

The  sanu'  provision  is  found  in  similar  statutes  passed  in  almost 
every  year  from  18(S4  to  1902,  and  lelating  to  lines  intended  to 
serve  as  highways  of  hiterstate  connnunication.  When  ( )klahoma 
became  a  state,  the  laws  of  other  states  which  were  referred  to 
in  these  various  acts  ceased  to  be  operative  within  its  limits,  and 
by  vii'tue  of  its  statehood  and  with  the  direct  sanction  of  Con- 
gress, it  became  authorized  to  prescribe  reasonable  maximum 
rates  for  intrastate  transportation  throughout  its  extent.   .   .   . 

The  decisions  of  this  court  since  the  passage  of  the  act  to 
regulate  conunerce  have  uniformly  recognized  that  it  was  com- 
petent for  the  state  fix  such  rates,  a})plicable  throughout  its  ter- 
ritory. If  it  be  said  that,  in  the  contests  that  have  been  waged 
over  state  laws  duriiig  the  past  twenty-five  years,  the  question 
of  interference  with  interstate  commerce  by  the  establishment  of 
state-wide  rates  for  intrastate  traffic  has  seldom  been  raised,  this 
fact  itself  attests  the  common  conception  of  the  scope  of  state 
authority.  And  the  decisions  recognizing  and  defining  the  state 
power  wholly  refute  the  contention  that  the  making  of  such 
rates  either  constitutes  a  direct  burden  u^jon  the  interstate 
commerce  or  is  repugnant  to  the  Federal  statute. 

In  Doiv  V.  Beidelman,  125  U.  S.  680,  31  L.  ed.  841,  2  Inters. 
Com.  Rep.  56,  8  Sup.  Ct.  Rep.  1028,  the  statute  of  Arkansas, 
enacted  m  April,  1887,  which  established  3  cents  a  mile  as  the 
maximum  fare  for  carrying  passengers  within  the  state  on  rail- 
roads over  75  miles  in  length,  was  sustained  against  the  objection 
of  the  owners  of  the  Memphis  &  Little  Rock  Railroad,  who 
attacked  the  act  as  confiscatory  and  arbitrary  in  its  classification. 
The  same  statute  was  again  upheld  in  St.  Louis  Sj-  S.  F.  R.  Co. 
V.  am,  156  U.  S.  649,  39  L.  ed.  567,  15  Sup.  Ct.  Rep.  484.  In 
Chicago,  M.  ^  St.  P.  11.  Co.  v.  Minmmta,  134  U.  S.  418,  33  L. 
ed.  970,  3  Inters.  Com.  Rep.  209,  10  Sup.  Ct.  Rep.  462,  702, 
the   statute   of   that  state    (1887)    creating   a   commission   with 


THE  MINNESOTA   RATE  CASE  675 

power  to  prescribe  intrastate  rates  was  adjudged  to  be  invalid, 
but  this  was  upon  the  ground  that  the  act  as  construed  by  the 
state  court  made  the  rates  published  by  the  commission  final  and 
conclusive,  and  precluded  any  judicial  mqury  whether  they  were 
reasonable.  In  Chicago  cf  (r.  T.  ll.  Co.  v.  Wellnian,  143  U.  S. 
339,  36  L.  ed.  176,  12  Sup.  Ct.  Rep.  400,  the  act  of  the  legis- 
lature of  Michigan  (1889),  fixing  the  maximum  fare  for  passen- 
gers withm  the  state  at  2  cents  a  mile  in  the  case  of  companies 
whose  gross  earnings  exceeded  $3,000  a  mile,  was  unsuccessfully 
assailed  as  confiscatory,  and  no  contention  was  advanced  that 
such  an  act,  operating  throughout  the  state,  was  an  unwarrant- 
able interference  with  interstate  commerce. 

In  Reagcm  v.  Farmers'  Loan  ^  Trust  Co.  154  U.  S.  362,  38 
L.  ed.  loil,  4  Inters.  Com.  Rep.  560,  14  Sup.  Ct.  Rep.  1047, 
the  trustee  of  a  railroad  mortgage  attacked  the  statute  of  Texas 
(1891),  which  established  a  railroad  commission  with  authority 
to  regulate  tariffs,  and  the  order  of  the  commission  providing  a 
schedule  of  classified  rates  for  the  transportation  of  goods  withm 
the  state.  The  challenge  was  of  the  tariff  as  a  whole,  and  the 
inquiry  was  whether  the  body  of  rates  was  unreasonable,  and 
such  as  to  work  a  practical  destruction  of  rights  of  property. 
Viewed  in  this  aspect,  the  court,  upon  the  allegations  admitted 
by  demurrer,  held  the  action  of  the  commission  to  be  beyond  its 
constitutional  power,  and  affirmed  the  decree  of  the  circuit  court, 
enjoining  the  rates.  The  decree,  however,  was  reversed  so  far  as 
it  restramed  the  commission  from  discharging  the  duties  imposed 
by  the  statute,  and  from  proceeding  to  prescribe  reasonable  rates 
and  regulations.  A  further  question  was  presented  in  Reagan 
V.  3Iercantile  Trust  Co.  154  U.  S.  413,  38  L.  ed.  1028,  4  Inters. 
Com.  Rep.  575,  14  Sup.  Ct.  Rep.  1060,  in  respect  to  the  same 
statute  and  order  as  applied  to  the  Texas  &  Pacific  Railway 
Company,  which  had  been  organized  under  the  laws  of  the 
United  States  (16  Stat,  at  L.  573,  chap.  122),  and  operated  its 
road  not  only  within  that  state,  but  also  for  several  hundred 
miles  outside.  It  was  insisted  that  this  company  was  "  not  sub- 
ject to  the  control  of  the  state,  even  as  to  rates  for  transportation 
wholly  within  the  state,"  the  argument  behig  that  it  was  not 


(170  KA1L\VA\     I'KOl'.LK.MS 

witliin  (lie  slate  jMnvt'i-  lo  limit  llic  l^'cdcral  I'nuicliise  to  collect 
ti)lls.  lint  the  court  held  that  the  act  of  ( 'oii^tcss  did  not  go 
to  the  extent  asscrtecl,  hut  left  the  (■oiu[)any,  as  to  its  intrastate 
business,  subject  to  state  authority. 

The  elTci't  of  intrastate  rati's  upon  interstate  rates  was  urged 
in  ASnii/tli  V.  Ames,  109  V.  S.  4(;(),  42  L.  ed.  SlD,  IS  Sup.  Ct. 
Kep.  418,  and  in  the  cases  decided  therewith.  These  suits  were 
brought  by  stockholders  of  the  Tnion  Facilic  Railway  Company, 
the  Chicago  &  Northwestern  Railroad  Company,  and  the  Chicago, 
Turlington  &  Quincy  Railroad  Company,  to  enjoin  the  enforce- 
ment of  the  act  of  the  legislature  of  Nebraska,  [)assed  in  1893. 
This  was  a  comprehensive  statute,  classifying  the  freight  trans- 
ported from  any  point  in  Nebraska  to  any  other  point  in  that 
state,  and  prescribing  tables  of  maxinmm  rates.  The  companies 
affected  were  interstate  carriers  engaged  in  a  vast  commerce,  only 
a  small  portion  of  which  was  wholly  local  to  the  state.  On  the 
eastern  boundary  lay  Omaha,  a  city  of  large  importance  m  inter- 
state trade,  situated  on  the  Missouri  river,  with  Council  Bluffs, 
in  the  state  of  Iowa,  directly  op})osite.  The  point  was  distinctly 
made  in  the  chcuit  court  that  the  statute  interfered  with  inter- 
state commerce  because,  first,  it  established  a  classification  of 
freights  different  frcmi  that  which  prevailed  west  of  Chicago, 
and  second,  by  reducing  local  rates  it  necessarily  reduced  rates 
on  interstate  business.  Mr.  Justice  Brewer,  who  tried  the  cases, 
overruled  these  objections,  holding  that  neither  the  convenience 
of  the  carriers  nor  the  consequences  of  competition  with  respect 
to  interstate  rates  could  be  pleaded  "  in  restraint  of  the  other- 
wise undeniable  power  of  the  state."  Ames  v.  Utiion  P.  R.  Co., 
64  Fed.  165,  171,  172.  Havmg  disposed  of  this  contention,  the 
court  considered  the  question  of  the  reasonableness  of  the  rates, 
and  reached  the  conclusion  that  they  were  invalid  because  they 
amounted  to  a  deprivation  of  the  carriers'  rights  of  property.  On 
appeal  to  this  court,  the  counsel  for  the  appellees  directed  atten- 
tion to  the  conditions  of  transportation  in  Nebraska.  It  was  argued 
that  the  local  traffic  was  carried  over  the  same  tracks,  m  the  same 
trams,  and  often  in  the  same  cars  with  the  interstate  traffic  ;  that 
to  separate  the  cost  of  carrying  the  one  sort  of  traffic  from  that 


THE  MINNESOTA  RATE  CASE        677 

of  the  other  was  a  "  manifest  impossibility  "  ;  and  that  it  M^as  a 
necessary  consequence  of  existing  conditions  that,  if  Nebraska 
controlled  the  local  rates,  it,  at  tlie  same  time,  controlled  the 
interstate  rates.  But  this  contention  was  not  sustained,  and  the 
affirmance  of  the  decree  was  placed  upon  the  distinct  ground 
that  the  rates  were  confiscatory.  It  was  ruled  that  the  reason- 
ableness of  intrastate  rates  was  to  be  determined  by  considering 
the  intrastate  business  separately.  In  answer  to  the  suggestion 
that  the  conditions  of  business  might  have  changed  for  the  better 
since  the  decrees,  the  court  called  attention  to  the  proviso  in  the 
decrees  intended  to  meet  such  a  case,  adding  that  if  the  circuit 
court  found  that  conditions  were  such  as  to  permit  the  applica- 
tion of  the,  state  rates  without  depriving  the  carriers  of  just 
compensation,  it  would  "  be  its  duty  to  discharge  the  injunction  " 
and  to  make  whatever  order  was  necessary  "  to  remove  any  ob- 
struction placed  by  the  decrees  in  these  cases  in  the  way  of  the 
enforcement  of  the  statute."  169  U.  S.  550  ;  see  Stnyth  v.  Aynes, 
171  U.  S.  361,  365,  43  L.  ed.  197,  198,  18  Sup.  Ct.  Rep.  888. 

In  that  one  of  the  Smyth  cases  which  was  brought  l)y  the 
stockholders  of  the  Union  Pacific  Railway  Company,  not  only 
was  the  case  presented  of  a  trunk  line  crossing  the  state  with  a 
relatively  small  proportion  of  business  local  to  Nebraska,  but  the 
company  liad  been  formed  by  a  consolidation  of  several  companies 
by  authority  of  Congress,  one  of  them  being  the  Union  Pacific 
Railroad  Company,  incorporated  by  the  act  of  July  1,  1862, 
chap.  120,  12  Stat,  at  L.  489.  By  tliis  act  (§  18,  p.  497),  it  was 
expressly  provided  that  Congress  might  reduce  the  rates  of  fare 
if  unreasonable,  and  might  fix  the  same  l)y  law  whenever  the  net 
earnings  of  the  entire  road  and  telegraph  should  exceed  a  certain 
amount.  But  this  language,  while  showhig  that  Congress  intended 
to  reserve  the  power  to  prevent  unreasonable  exactions,  was  not 
deemed  to  be  equivalent  to  a  declaration  that  the  states  through 
which  the  road  might  be  constructed  should  not  regulate  rates 
for  intrastate  transportation.    ^Fhe  court  said: 

It  cannot  be  doubted  that  the  niakinc;  of  rates  for  transportation  by  rail- 
road corporations  along  public  highways,  between  points  wholly  within  the 
limits  of  a  state,  is  a  subject  primarily  within  the  control  of  that  state.  .  .  . 


l)7S  KAILWAN     TKOI'.LKMS 

(."oiii^R'ss  not  having  oxrrk'd  this  ju)\vi'r,  we  do  not  think  that  tlie  national 
I'haractor  of  tlu' coriioration  constructing  tlio  Union  racilic  Uaih-oad  stands 
in  the  way  of  a  state  in'cscribing  rates  for  transjxjrting  [)roperty  on  that 
road  wholly  between  points  within  its  territory.  Until  Congress,  in  the 
exercise  either  of  the  power  specifically  reserved  by  the  18th  section  of  the 
act  of  1H<52,  or  its  power  under  the  general  reservation  made  of  authority 
to  add  to,  alter,  amend,  or  repeal  that  act,  prescribes  rates  to  be  charged  by 
the  railroad  company,  it  remains  with  the  states  through  which  the  road 
passes  to  fix  rates  for  transportation  beginning  and  ending  within  their 
respective  limits.    169  U.  S.  521,  522. 

It  is  plain  that  had  the  intrastate  rates,  established  by  the 
comprehensive  statute  of  Nebraska,  not  been  found  to  be  eonlis- 
catory,  they  would  have  been  sustained  in  their  application  to  all 
intrastate  traffic  notwithstanding  the  reserved  power  of  Congress 
over  the  Union  Pacific  line,  and  despite  the  argument'  based  upon 
the  interdependence  of  interstate  and  intrastate  rates. 

The  cases  of  Louisville  ^  JV.  R.  Co.  v.  Kentucky^  183  U.  S. 
503,  -10  L.  ed.  298,  22  Sup.  Ct.  Rep.  95,  and  Lonisville  ^  N. 
R.  Co.  V.  Euhanh  184  U.  S.  27,  46  L.  ed.  41(3,  22  Sup.  Ct.  Rep. 
277,  concerned  the  validity  of  the  long  and  short  haul  provision 
of  the  Constitution  of  Kentucky,  adopted  in  1891.  In  the  first 
case,  violation  was  charged  with  respect  to  the  transportation  of 
coal  from  Altamont  to  Lebanon,  an  intermediate  station,  as  com- 
pared with  charges  for  transportation  from  Altamont  to  Eliza- 
bethtown  and  Louisville,  all  places  being  within  Kentucky.  The 
difference  in  rate  was  justified  by  the  company  on  the  ground 
that  at  Louisville  the  coal  hauled  from  Altamont  came  into  com- 
petition with  that  brought  down  the  Ohio  river,  and  at  Elizabeth- 
town  with  western  Kentucky  coal  brought  there  by  the  Illinois 
Central  Railroad.  The  contention  that  the  state  provision  operated 
as  an  interference  with  interstate  commerce  was  presented  and 
overruled,  the  court  saying  : 

It  is  plain  that  the  provision  in  question  does  not  in  terms  embrace  the 
case  of  interstate  traffic.  It  is  restricted  in  its  regulation  to  those  who  own 
or  operate  a  railroad  within  the  state,  and  the  long  and  short  distances  men- 
tioned are  evidently  distances  upon  the  railroad  line  within  the  state.  The 
particular  case  before  us  is  one  involving  only  the  transportation  of  coal 
from  one  point  in  the  state  of  Kentucky  to  another  by  a  corpoi-ation  of  that 
state.    It  may  be  that  the  enforcement  of  the  state  regulation  forbidding 


THE  MINNESOTA   RATE  CASE  679 

discrimination  in  rates  in  the  case  of  articles  of  a  like  kind,  carried  for  dif- 
ferent distances  over  the  same  line,  may  somewhat  affect  commerce  gener- 
ally;  but  we  have  frequently  held  that  such  a  result, is  too  remote  and 
indirect  to  be  regarded  as  an  interference  with  interstate  commerce ;  that 
the  interference  with  the  commercial  power  of  the  general  government  to 
be  unlawful  must  be  direct,  and  not  the  merely  incidental  effect  of  enforc- 
ing the  police  powers  of  a  state.    183  U.  S.  518,  519. 

In  the  Eubank  case,  which  had  been  argued  before  the  first 
case  was  decided,  it  appeared  that  the  state  court  had  construed 
the  same  provision  of  the  Kentucky  Constitution  as  embracing 
a  long  haul  from  a  place  outside  to  one  within  the  state  (Nash- 
ville and  Louisville),  and  a  shorter  haul  on  the  same  line  and 
in  the  same  direction  between  points  within  the  state.  The  court 
held  that,  so  construed,  the  provision  was  invalid,  as  being  a 
regulation  of  interstate  commerce,  because  it  linked  the  inter- 
state rate  to  the  rate  for  the  shorter  haul,  and  thus  the  interstate 
charge  was  directly  controlled  by  the  state  law.  IS-l  U.  S.  41,  43. 
The  authority  of  the  former  decision  upholding  the  state  law,  as 
applied  to  places  all  of  which  were  witlim  the  state,  was  in  no  way 
impaired,  and  the  court  fully  recognized  the  power  of  the  state  to 
prescribe  maximum  charges  for  intrastate  traffic  although  carried 
over  an  interstate  road  to  points  on  the  state  line.   Id.  33,  42. 

The  case  of  MhmeapoUs  cf  St.  L.  R.  Co.  v.  Minnesota,  186 
U.  S.  257,  46  L.  ed.  1151,  22  Sup.  Ct.  Rep.  900,  involved  ship- 
ments of  hard  coal  in  carload  lots  from  Duluth,  Minnesota,  to 
points  in  the  southern  and  western  portion  of  that  state.  The 
Railroad  &  Warehouse  Commission  of  iVIinnesota,  in  1899,  pre- 
scribed a  joint  rate  to  be  observed  by  the  St.  Paul  &  Duluth 
Railroad  Company,  the  Minneapolis  &  St.  Louis  Railroad  Com- 
pany, and  other  carriers.  The  state  court  directed  the  issue  of 
a  writ  of  mandamus  to  compel  compliance  with  the  order.  It 
was  objected  that  the  act  under  which  the  order  was  made  was 
unconstitutional  so  far  as  it  assumed  to  establish  joint  through 
rates  over  the  lines  of  independent  connecting  railroads,  and  to 
divide  joint  earnings,  and  that  the  tariff  as  fixed  was  not  com- 
pensatory. This  court  affirmed  the  judgment.  In  Alabama  (f 
V.  R.  Co.  V.  Mississippi  R.  Commission,  203  U.  S.  496,  51  L.  ed. 


i;S()  KAIIAVA^'    PKor.LKAIS 

2Si),  1^7  Siij).  a.  \lv[).  It'-),  the  conipiuiy  niado  what  it  called  a 
"•ivbillin^  rate"  on  L!,"raiu  sliip[)i'(l  iVom  N'icksbui'tJ^  to  Meridian, 
Mississippi,  wliicli  was  applicable  only  in  case  of  shipments  re- 
ceived at  N'icksbnio-  over  the  Shreveport  line.  It  gave,  however, 
to  sncii  ship[)ers  an  option  for  a  specified  time  to  send  other 
grain  t'loni  \'icksbnrg  instead,  and  thns  it  was  in  fact  a  locjal 
rate.  V^^  end  this  discrimination,  the  state  connnission,  in  1903, 
fixed  the  same  rate  for  all  grain  products  shipped  from  Vicks- 
biirg  to  Mi'ridian,  It  was  urged  that  the  effect  of  the  order 
would  be  to  force  the  plaintiff  to  enter  into  joint  through  inter- 
state tariffs  and  divisions  with  all  lines  reaching  Vicksburg 
by  rail  or  river,  whether  it  desired  such  arrangements  or  not. 
The  court  sustained  the  order,  holding  that  it  was  competent 
for  the  state  to  enforce  equality  as  to  local  transportation,  and 
that  this  equality  could  not  be  defeated  "  in  respect  to  any 
local  shipments  by  arrangements  made  with  or  to  favor  outside 
companies." 

In  Nnrtheni  1\  R.  Co.  v.  North  Dakota,  21(3  U.  S.  579,  54 
L.  ed.  024,  30  Sup.  Ct.  Rep.  423,  the  attorney  general  of  North 
Dakota  charged  the  company  with  continuous  violation  of  a  law 
fixing  I'ates  for  the  carriage  of  coal  within  the  state  (North  Dakota, 
Laws  of  1907,  chap.  51),  and  asked  for  an  injunction.  It  ap- 
pears by  tlie  record  tliat  in  its  return  to  the  rule  to  show  cause 
in  the  state  court,  the  company  alleged  that  the  statute  was  void 
because  repugnant  to  the  commerce  clause,  and  also  that  the 
rate  fixed  thereby  was  confiscatory.  In  support  of  the  last  con- 
tention the  return  set  forth  that  the  maximum  rates  for  carrying 
coal  wliich  the  company  was  allowed  to  charge  under  the  act  in 
question  were  greatly  lower  than  the  rates  for  similar  service 
fixed  by  Minnesota  for  that  state  (reference  being  made  to  chap- 
ter 232  of  the  Laws  of  1907,  the  commodity  rate  act  now  in 
question),  and  those  fixed  by  the  railroad  commissions  of  Illinois 
and  Iowa,  respectively;  and  that  the  conditions  existing  in  North 
Dakota  made  it  impossible  to  transport  coal  at  a  less  rate  than 
in  the  states  named.  The  contention  that  the  act  violated  the 
interstate  commerce  clause  was  said  by  the  supreme  court  of  the 
state  to  be  based  upon  the  assumption  that  state  regulation  of 


THE   MINNESOTA  RATE  CASE  681 

local  rates  on  interstate  lines  amounted  to  an  interference  with 
interstate  commerce.  In  view  of  the  decisions  of  this  court, 
the  last  question  was  not  considered  open  to  debate.  State  ex. 
rel.  McCue  v.  Northern  P.  R.  Co.  19  N.  D.  45,  55,  25  L.R.A. 
(N.S.)  1001,  120  N.  W.  869.  This  ruling  was  not  challenged 
by  the  argument  for  the  plaintiff  in  error  here,  and  the  ques- 
tion as  to  interference  with  interstate  commerce  was  treated 
as  removed  from  the  case  by  the  holding  of  the  state  court 
that  the  rates  applied  only  to  transportation  within  the  state. 
216  U.  S.  580. 

To  suppose,  however,  from  a  review  of  these  decisions,  that 
the  exercise  of  this  acknowledged  power  of  the  state  may  be  per- 
mitted to  create  an  u'reconcilable  conflict  with  the  authority  of 
the  nation,  or  that,  through  an  equipoise  of  powers,  an  effective 
control  of  interstate  commerce  is  rendered  impossible,  is  to  over- 
look the  dominant  operation  of  the  Constitution,  which,  creating 
a  nation,  equipped  it  with  an  authority,  supreme  and  plenary,  to 
control  national  commerce,  and  to  prevent  that  control,  exercised 
in  the  wisdom  of  Congress,  from  being  obstructed  or  destroyed  by 
any  opposing  action.  But,  as  we  said  at  the  outset,  our  system 
of  government  is  a  practical  adjustment  by  which  the  national 
authority,  as  conferred  by  the  Constitution,  is  maintained  in 
its  full  scope  without  unnecessary  loss  of  local  efficiency.  It 
thus  clearly  appears  that,  under  the  established  principles  gov- 
erning state  action,  the  state  of  Minnesota  did  not  transcend  the 
limits  of  its  authority  in  prescribing  the  rates  here  involved, 
assuming  them  to  be  reasonable  intrastate  rates.  It  exercised 
an  authority  appropriate  to  its  territorial  jurisdiction,  and  not 
opposed  to  any  action  thus  far  taken  by  Congress. 

The  interblending  of  operations  in  the  conduct  of  interstate 
and  local  business  by  interstate  carriers  is  strongly  pressed  upon 
our  attention.  It  is  urged  that  the  same  right  of  way,  terminals, 
rails,  bridges,  and  stations  are  provided  for  both  classes  of  traffic*, 
that  the  proportion  of  each  sort  of  business  varies  from  year  to 
year,  and,  indeed,  from  day  to-day  ;  that  no  division  of  the  plant, 
no  apportionment  of  it  between  interstate  and  local  traffic,  can  be 
made  to-day,  which  will  hold  to-moii'ow  ;  that  terminals,  facilities, 


(;S'2  KAiLw.w  rijoi'.i. k:\is 

ill  1(1  connootions  in  one  state  aid  the  carrier's  entire  business,  and 
arc  an  eU'inent  of  value  with  respect  to  the  whole  property  and 
tlu'  business  in  other  states;  that  securities  are  issued  against 
llif  entire  line  ot"  the  carrier  and  cannot  be  divided  by  states; 
that  tarilTs  should  be  nuide  with  a  view  to  all  the  trallic  of  the 
load,  an«l  should  be  fair  as  between  through  and  short-haul  busi- 
ness ;  and  that,  in  substance,  no  regulation  of  rates  can  be  just 
which  docs  not  lake  into  consideration  the  whole  field  of  the 
carrier's  operations,  irrespective  of  state  lines.  The  force  of  these 
contentions  is  emphasized  in  these  cases,  and  in  others  of  like 
nature,  by  the  extreme  difficulty  and  intricacy  of  the  calculations 
which  nuist  be  made  in  the  effort  to  establish  a  segregation  of 
intrastate  busmess  for  the  purpose  of  determmuig  tlie  return  to 
which  the  carrier  is  properly  entitled  therefrom. 

But  these  considerations  are  for  the  practical  judgment  of  Con- 
gress in  determuiing  the  extent  of  the  regulation  necessary  under 
existing  conditions  of  transportation  to  conserve  and  promote 
the  mterests  of  uiterstate  commerce.  If  the  situation  has  become 
such,  by  reason  of  the  interblending  of  the  interstate  and  intra- 
state operations  of  mterstate  carriers,  that  adequate  regulation 
of  their  interstate  rates  cannot  be  maintained  without  imposing 
requirements  with  respect  to  their  intrastate  rates  which  sub- 
stantially affect  the  former,  it  is  for  Congress  to  determine,  within 
the  limits  of  its  constitutional  authority  over  interstate  commerce 
and  its  instruments  the  measure  of  the  regulation  it  should  sup- 
ply. It  is  the  function  of  this  court  to  interpret  and  apply  the 
law  already  enacted,  but  not,  under  the  guise  of  construction,  to 
provide  a  more  comprehensive  scheme  of  regulation  than  Con- 
gress has  decided  upon.  Nor,  in  the  absence  of  Federal  action, 
may  we  deny  effect  to  the  laws  of  the  state  enacted  within  the 
field  which  it  is  entitled  to  occupy  until  its  authority  is  limited 
through  the  exertion  by  Congress  of  its  paramount  constitutional 
power. 

Second.    Are  the  state's  acts  and  orders  confiscatory? 

The  rate-making  power  is  a  legislative  power  and  necessarily 
implies  a  range  of  legislative  discretion.  We  do  not  sit  as  a  board 
of  revision  to  substitute  our  judgment  for  that  of  the  legislature, 


THE  MINNESOTA  RATE  CASE  683 

or  of  the  commission  lawfully  constituted  by  it,  as  to  matters 
within  the  provmce  of  either.  S'an  Diego  Land  df"  Totvn  Co.  v. 
Jasper,  189  U.  S.  439,  44G,  47  L.  ed.  892,  896,  23  Sup.  Ct.  Rep. 
571.  The  case  falls  withm  a  well-defined  category.  Here  we 
have  a  general  schedule  of  rates,  involving  the  profitableness  of 
the  intrastate  operations  of  the  carrier,  taken  as  a  whole,  and  the 
inquiry  is  whether  the  state  has  overstepped  the  constitutional 
limit  by  making  the  rates  so  unreasonably  low  that  the  carriers 
are  deprived  of  their  property  without  due  process  of  law%  and 
denied  the  equal  protection  of  the  laws. 

The  property  of  the  railroad  corporation  has  been  devoted  to 
a  public  use.  There  is  always  the  obligation  sprmging  from  the 
nature  of  the  business  in  which  it  is  engaged  —  which  private 
exigency  may  not  be  permitted  to  ignore  —  that  there  shall  not 
be  an  exorbitant  charge  for  the  service  rendered.  But  the  state 
has  not  seen  fit  to  undertake  the  service  itself ;  and  the  private 
property  embarked  m  it  is  not  placed  at  the  mercy  of  legislative 
caprice.  It  rests  secure  under  the  constitutional  protection  winch 
extends  not  merely  to  the  title,  but  to  the  right  to  receive  just 
compensation  for  the  service  given  to  the  public.  .  .  . 

In  determinmg  whether  that  right  has  been  denied,  each  case 
must  rest  upon  its  special  facts.  But  the  general  principles  which 
are  applicable  in  a  case  of  this  character  have  been  set  forth  in 
the  decisions. 

(1)  The  basis  of  calculation  is  the  "  fair  value  of  the  prop- 
erty "  used  for  the  convenience  of  the  public.  ..."  What  the 
company  is  entitled  to  demand,  in  order  that  it  may  have  just 
compensation,  is  a  fair  return  upon  the  reasonable  value  of  the 
property  at  the  time  it  is  being  used  for  the  public." 

(2)  The  ascertainment  of  that  value  is  not  controlled  by  arti- 
ficial rules.  It  is  not  a  matter  of  formulas,  but  there  must  be  a 
reasonable  judgment,  having  its  basis  in  a  proper  consideration 
of  all  relevant  facts.  The  scope  of  the  inquuy  was  thus  broadly 
described  in  Smi/th  v.  Ames  (169  U.  S.  546,  547) : 

In  order  to  ascertain  that  value,  the  original  cost  of  construction,  the 
amount  expended  in  ])ennanent  improvements,  the  amount  and  market 
value  of  its  bonds  and  stuck,  the  present,  as  compared  with  the  original, 


084  KAll.WAV    i'KUHLEMj^ 

cost  of  I'oiistnirtiini,  the  prohabh'  earninu;  oai>aoity  of  tlio  property  under 
partieular  rates  prescriheil  by  statute,  ami  tlie  smii  reipiireil  to  meet  operat,- 
inj;  expenses,  are  all  matters  for  consideration,  and  are  to  be  given  such 
weiglit  as  nuiy  be  just  and  right  in  each  case.  We  do  not  say  that  there 
nuiv  not  be  other  matters  to  be  regarded  in  estimating  the  value  of  the 
property.  What  tlie  com]>any  is  entitled  to  ask  is  a  fair  return  upon  the 
value  of  that  wliich  it  cmjiloys  for  tin-  luililic  convenience.  On  the  other 
hand,  wliat  the  pul)lic  is  entitled  to  demand  is  that  no  more  be  exacted 
trmii  it  for  the  use  of  a  jiublic  highway  than  the  services  rendered  by  it 
are  reasonably  worth. 

(3)  Where  the  business  of  the  carrier  is  both  interstate  and 
mtrastate,  the  question  whetlier  a  scheme  of  maximum  rates 
fixed  by  the  state  for  intrastate  transportation  affords  a  fair  re- 
turn must  be  determined  by  considering  sejmrately  the  value  of 
the  property  employed  in  the  intrastate  business  and  the  com- 
pensation allowed  m  that  business  under  the  rates  prescribed. 
This  was  also  ruled  in  the  Smyth  Case  {id.  p.  541).  The  reason, 
as  there  stated,  is  that  the  state  cannot  justify  unreasonably  low 
rates  for  domestic  transportation,  considered  alone,  upon  the 
ground  that  the  carrier  is  earning  large  profits  on  its  interstate 
business,  and,  on  the  other  hand,  the  carrier  cannot  justify  un- 
reasonably high  rates  on  domestic  business  because  only  in  that 
way  is  it  able  to  meet  losses  on  its  interstate  business. 

In  the  present  cases  the  necessity  of  this  segregation  of  the 
domestic  busmess  in  determining  values  and  results  of  operation 
was  recognized  by  both  parties.  Voluminous  testimony  was  taken 
before  the  master,  and  numerous  exhibits  containing  data  and 
calculations  were  submitted  for  the  purpose  of  showing  their  re- 
spective estimates  of  the  value  of  the  entire  property  of  the  car- 
riers in  Mmnesota,  the  amount  of  income  and  expense  in  that 
state,  their  theories  of  apportionment  between  the  interstate  and 
intrastate  business,  and  their  contentions  as  to  the  net  return  for 
intrastate  transportation  under  the  state  rates.  The  multitude 
of  facts  which  are  involved  makes  it  impossible  here  to  present 
a  comprehensive  review,  even  in  a  summary  way.  We  must  be 
content  with  a  statement  of  the  salient  points,  and  deal  only  with 
those  matters  which,  after  a  careful  consideration  of  the  entire 
record,  we  regard  as  controlling  our  decision. 


THE  MINNESOTA  RATE  CASE  685 

In  each  of  the  three  cases  (save  iii  certam  particulars  with 
respect  to  that  of  tlie  MinneapoHs  &  St.  Louis  Ilaiboad  Com- 
pany) the  method  adopted  by  the  master  was  as  follows : 

The  period  taken  for  the  purpose  of  testing  the  sufficiency  of  the 
rates  was  the  fiscal  year  ending  June  -30, 1908.  During  this  period, 
all  the  rates  in  question,  freig-ht  and  passenger,  were  actually  in 
force,  with  the  exception  of  the  commodity  rates  prescribed  by 
the  act  of  April  18,  1907,  which  had  been  eu  joined.  The  amount 
of  the  reduction  m  tlie  intrastate  revenue  which  would  have 
been  caused  by  the  application  of  the  commodity  rates  is  shown. 

The  master  found  the  present  value  of  the  entire  property  of 
the  carrier,  used  in  the  public  service  in  the  state  of  Minnesota. 
Tliis  valuation  was  as  of  June  30,  1908,  and  was  made  on  the 
basis  of  the  cost  of  reproduction  new.  The  master  also  made 
findings  as  to  the  original  cost  of  construction,  and  as  to  the 
present  value  on  the  basis  of  cost  of  reproduction  new,  of  the 
entire  system  of  the  carrier.  The  estimated  value  of  the  railroad 
property  within  the  state  was  divided  between  the  freight  and 
passenger  business  upon  the  relation  of  the  gross  revenue  derived 
from  each.  The  part  of  the  total  value  which  was  thus  assigned 
to  the  freight  business  within  the  state  was  then  divided  between 
the  mterstate  and  intrastate  freight  business  on  tlie  basis  of  gross 
revenue  ;  and  a  similar  division  was  made  between  the  mterstate 
and  intrastate  busmess  of  the  property  value  assigned  to  the  pas- 
senger department.  In  this  way  the  master  found  the  value  of  the 
property  used  in  intrastate  transportation,  freight  and  passenger, 
upon  which  he  computed  the  net  return  received  by  the  carrier. 

There  was  no  substantial  dispute  as  to  the  amount  of  the  en- 
tire revenue  assignable  to  the  state  or  as  to  its  division  between 
interstate  and  intrastate  business,  as  an  examination  of  the  trans- 
actions in  which  the  revenue  was  obtained  permitted  the  making 
of  the  requisite  apportionments  with  reasonable  certainty. 

The  master  also  ascertained  the  total  expense  incurred  by  the 
carrier  within  the  state.  This  expense  was  first  divided  between 
freight  and  passenger  busmess.  Those  items  of  cost  which  were 
directly  incurred  in  each  sort  of  business,  and  not  common  to 
both,  were  directly  assigned;    and  such  items  were  found  to 


G80  UAI1.\\A^     I'KOl'.Ll'LMS 

covor  about  (>()  jh>i'  cent  of  all  cxponsos.  The  rcmaiiiincf  itoms, 
llioso  of  c't)niiii(iii  rxpt'iisr,  wcii'  (li\  idcd  hi'twceu  the  i'r(Ut;lit  and 
passenger  bnsiiu'ss  upon  the  relation,  as  to  most  of  them,  of 
revenue  train-miles,  and  as  to  the;  others,  of  revenue  engine-miles. 
Having  thus  ascertained  the  share  of  the  expense  within  the 
state  of  the  freiglit  and  passenger  departments  respectively,  it 
remained  to  divide  that  share,  in  each  case,  between  tlie  inter- 
state and  intrastate  business.  This  a])i)ortionment  was  made,  in 
the  ease  of  freight  expense,  upon  what  was  termed  an  ''('(juated 
ton-mile  basis";  and  in  the  ease  of  passenger  expense  upon  an 
"equated  passenger-mile  basis."  That  is  to  say,  the  master  con- 
cluded that  the  cost  per  ton  mile  of  doing  the  intrastate  freight 
business  was  at  least  two  and  one-half  times  the  {;ost  per  ton 
mile  of  the  interstate  freight  business,  and  hence  he  divided  the 
total  freight  expense  according  to  the  relation  of  the  interstate 
and  intrastate  ton  miles  after  the  latter  had  been  increased  two 
and  one-half  times.  In  the  case  of  the  passenger  expense,  he  con- 
cluded that  the  cost  per  passenger-mile  in  the  intrastate  busi- 
ness was  at  least  15  per  cent  greater  than  that  in  the  interstate 
business,  and  the  total  passenger  expense  was  divided  upon 
the  relation  of  passenger-miles  after  increasing  the  intrastate 
passenger-miles  15  per  cent.^    By  the  use  of  equalizmg  factors, 

^The  method  is  illustrated  from  the  following  extract  from  the  findings  in 
the  Northern  Pacific  Case  : 

Equated  Ton-Mile  Basis 

Freight  —  On  basis  of  1  intrastate 

ton  mile  costing  as  much  as  2.5 

interstate  ton  miles  Actual  Equated        rroportion      Operating 

Exps. 
Intrastate  ton  miles     .     .     .     130,580,988X2.5=326,452,470=25.362%    |il,355,273.82 
Interstate  ton  miles     .     .     .     960,709,494X1.0=960,709,494  =  74.638%      3,988,444.43 

1,091,290,482  1,287,161,964  =  100.%        $5,343,718.25 

Equated  Passenger-Mile  Basis 

Passenger  —  On  hasis  of  100  intra- 
state passenger  miles  costing  as 
much  as  115  interstate  passenger 

'I'iles  Actual  Equated      Proportion      Operating 

Exps. 
Intrastate  passenger  miles    .       .52,317,140X1.15=   60,164,711  =  37.347%     .$863,325.18 
luter.state  i)a.ssenger  miles    .     100,931,180X1.00  =  100,931,180=62.65.3%    1,448,306.77 

153,248,320  161,095,891  =  100.%      $2,311,631.95 


THE  MINNESOTA  RATE  CASE  687 

the  same  result  was  obtained  upon  what  was  called  an  "equated 
revenue  basis."  ^ 

The  net  profits  of  the  interstate  and  intrastate  businesses,  re- 
spectively, passenger  and  freight,  were  then  found  by  deductuig 
the  apportioned  share  of  expense  from  the  apportioned  share  of 
revenue,  and  the  rate  per  cent  of  the  net  profit  upon  the  rate 
value  assigned  to  each  sort  of  busmess  was  computed.  The  mas- 
ter concluded  that  the  returns  from  intrastate  transportation 
were  unreasonably  low,  and  hence  that  the  rates  in  question 
were  confiscatory. 

The  validity  of  the  result  depends  upon  the  estimates  of  the 
value  of  the  property  withui  the  state  and  tlie  apportionments 
both  of  value  and  of  expense  between  interstate  and  intrastate 
operations. 

1  Equated  Revenue  Basis. — In  the  case  of  the  Northern  Pacific  Company  it 
was  found  that  the  relation  of  freiglit  revenue  per  ton  per  mile  derived  from 
the  intrastate  business,  as  compared  with  the  interstate  business,  was  as  1.4387 
is  to  1.0000.  Tlie  relation  of  cost  per  ton  per  mile  in  the  intrastate  business 
in  proportion  to  revenue,  to  the  co.st  i^er  ton  per  mile  in  interstate  business  in 
proportion  to  revenue,  was  then  found  to  be  as  1.7377  is  to  1.0000,  as  follows : 

2.50  ,  1.4.387  _  1.7377 
100  ■   1.0000  "  1.0000 

The  actual  intra.state  freiijht  revenue  was  multiplied  by  1.7377  to  obtain 
the  equated  revenue,  and  thus  the  .same  percentages  were  obtained  as  on  the 
equated  ton-mile  basis,  as  follows  : 

Equated  Revenue  Basis.  Freight 

Actual  Revenue  Kquated  Revenue 

Intrastate .'ii;i,.-).55,.342.92  X  1.7377  =  .1i;2,702,719.39=  25.362% 

Interstate 7,953,734.41X1-         =    7,953,734.41  =  74.638% 

$10,656,453.80=100.% 

The  relation  of  revenue  per  passenger  mile,  intrastate  and  interstate,  was 
found  to  be  as  1.0092  is  to  1.0000 ;  and  thus,  the  relation  of  co.st  per  pa.ssenger 
mile  in  relation  to  revenue  was  as  1.1395  is  to  1.0000.  The  division  was  then 
made  as  follows : 

Equated  Revenue  Basis.  Passenger 

Actual  Revenue  Equated  Revenue 

Intrastate .fl;l,015,1.50..34  X  1.1395  =  .Sl,1.5(),763.81  =  37.347% 

Interstate 1,940,718.17X1.         =     1,940,718.17  =  02.653% 

$3,097,48^98  =  100.% 


liSS  KAILWAV    I'KOBLEMS 

It  will  \)v  cDiivt'iiifut  to  tiikf  up  llie  (hree  cases  separately: 

1.  Nortlicrn  J^acific  Railway  Compamj.  The  par  value,  April 30, 
1008,  of  the  stock  of  this  eoiupany,  was  found  to  be  $215,539,- 
1)34.99,  and  of  the  l)on(ls,  $190,250,577.66;  total,  $405,79(),- 
392.05.  (Included  in  this  statement  of  capital  stock  is  the  sum 
of  $00,539,034.99  received  to  April  30,  1908,  upon  subscrip- 
tions to  new  capital  stock  [$95,000,000]  authorized  by  stock- 
holders' resolution  January  7,  1907.) 

These  securities  and  their  value  in  the  market  rest  upon  the 
entire  property  of  the  company.  They  include  assets  of  consid- 
erable value  (for  example,  the  stock  of  the  Northwestern  Im- 
provement Company,  owning  extensive  coal  lands),  wliich, 
however,  do  not  form  part  of  what  may  be  called  the  operating 
property  of  the  company,  or  that  devoted  to  the  public  service, 
upon  which  the  fau'  return  is  to  be  calculated  (15  Inters.  Com. 
Rep.  376,  397,  407).  Referring  to  the  market  value  of  the  se- 
curities, the  master  said :  "  Assets  and  property  not  devoted  to 
public  service  have  not  been  valued,  and  as  they  are  a  large  ele- 
ment in  stock  valuation  it  follows  that  value  of  bonds  and  stocks 
is  wliolly  unreliable  and  cannot  be  used  in  these  cases  as  an  ele- 
ment in  determining  the  value  of  operating  property,  or  as  a  basis 
for  rate-making."    In  this  view  the  master  was  undoubtedly  right. 

Much  evidence  was  produced  before  the  master  for  the  pur- 
pose of  showmg  the  actual  cost  of  construction  and  equipment  of 
the  entire  railroad  system  from  the  beginning  down  to  April  30, 
1908.  This,  the  master  states,  could  be  shown  only  by  the  cor- 
porate books  and  records ;  and  in  the  early  history  of  the  origi- 
nal company  these  are  somewhat  obscure  and  uncertain,  and,  by 
reason  of  lapse  of  time,  could  not  be  verified  by  other  proof. 
The  total  investment  cost  of  the  railroad  system  of  the  Northern 
Pacific  thus  shown  was  $369,252,755.  This  mcluded  certam 
items  which  the  master  held  not  to  be  properly  allowable  as  a 
part  of  the  cost,  and  after  their  deduction  the  cost  was  found  to 
be  $312,243,555.  Of  this  investment  cost,  it  appears  from  the 
evidence  submitted  by  the  company's  comptroller  that  the  sum  of 
$128,184,985.82  was  expended  for  construction  and  equipment, 


THE  MINNESOTA  KATE  CASE  689 

and  for  improvements  and  betterments,  during  the  period  from 
September  1,  1896,  to  April  30,  1908.  The  master  found  that 
the  Minnesota  track  mileage  is  substantially  21  per  cent  of  the 
track  mileage  of  the  whole  system  ^  and  that  if  the  cost  were 
proportioned  accordingly,  the  amount  assignable  to  the  state  of 
the  entire  cost  of  construction  and  equipment,  as  stated,  would 
be  $65,571,462. 

The  master,  however,  and  the  court  below,  in  confirming  his 
findings,  held  that  rates  were  not  to  be  predicated  upon  the 
original  investment. 

Taking,  as  the  basis,  the  cost  of  reproduction  new,  the  master 
found  the  value  of  the  entire  railroad  system  or  operating  property 
of  this  company  to  be  $452,666,489.^  The  value  of  that  portion 
of  the  system  which  was  in  the  state  of  Minnesota  was  separately 
found,  on  the  same  basis,  to  be  .$90,204,545.  It  was  upon  this 
estimate  of  the  value  of  tlie  property  in  the  state,  as  apportioned 
between  the  interstate  and  intrastate  busmess,  that  the  master 
computed  the  rate  of  return. 

The  total  net  profits  of  the  company  for  the  fiscal  year  ending 
June  30,  1908,  from  its  INIinnesota  business  (interstate  and  m- 
trastate),  was  found  to  be  $5,431,514.56.  This  was  equal  to 
6.021  per  cent  on  the  entire  estimated  value  of  the  property. 
Tliis  showing  of  the  results  of  the  entire  business  at  once  directs 
attention  to  the  importance  of  the  methods  adopted  in  making 
apportionments ;  but  before  considering  these,  the  question  is 
presented  as  to  the  soundness  of  the  underlying  estimate  of 
value.  May  it  be  accepted  as  a  basis  for  a  finding  that  the  rates 
are  confiscatory  ? 

1  The  master  found  that  the  total  track  mileage  of  the  system  was  7695.80 
and  that  the  track  mileage  in  Minnesota  was  162.5.20.  In  both  cases  spurs, 
yards,  and  sidings  were  included.  In  Minnesota,  as  shown  by  the  company's 
statement,  the  "passing,  side,  and  industry  tracks"  amounted  to  512.41  miles, 
leaving  for  the  single  track,  and  second  and  third  main  track,  miles,  a  total  of 
1112.79  miles. 

2  This  estimate  did  not  include  the  interest  of  the  Northern  Pacific  in  the 
Spokane,  Portland  &  Seattle  Railroad  which  was  under  construction,  or  the  Big 
Forks  &  International  Falls  Railway,  or  the  Minnesota  &  International  Railway, 
or  in  certain  lines  in  Manitoba,  under  lease,  which  were  found  not  to  be  part 
of  the  operating  system. 


690  K'A11.\V.\\     rK'Ol'IJlMS 

]'<ihiis.    Tlir   ili'Uis  riili'i'iiii;-   into  tlu'   \  aliuitiou   arc;  set,  forili 
ill   llu'   luarniii.' 

1  \'aluation  —  Nortlicni  racitii' : 

1.  Luiuls  for  ri.ulit  of  way,  yards  aiul  toiiniiials $121,024,562 

'J.  (ii-atliuji,  I'lcariuji,  and  }irul)l)in.u l'2,;i.'51,r)41 

3.  Proti'i'tit)!!  work,  rii)-rai),  rrtaiiiiiii;  walls 374,091 

4.  Tuniu'ls 25:5,250 

5.  Cross  ties  and  switi'li  tics 3,()57,576 

I).  Ballast 1,9(50,969 

7.  Rails 5,G45,:307 

8.  Trark  fastenings 727,228 

9.  Switches,  froths,  and  railroad  crossings ;W."?,717 

10.  Track  laying  and  surfacing      .     .     / 1,()00,,591 

11.  Bridges,  trestles,  and  culverts ;{,58(i,063 

12.  Track  and  bridge  tools 28,073 

13.  Fences,  cattle  guards,  and  signs 471,609 

14.  Stockyards  and  ai)i)urtcnances 37,098 

15.  Water  stations 436,489 

IC).  Coal  stations 120,039 

17.  Stations,  buildings,  and  fixtures 920,423 

IS.  Mi.seellaueous  buildings 1,054,874 

19.  Steam  and  electric  power  plants,  gas  plants 196,338 

20.  General  repair  shops 1,162,934 

21.  Shop  machinery  and  tools 529,322 

22.  Engine  houses,  turntables,  and  cinder  pits 1,026,346 

23.  Track  scales 38,520 

24.  Docks  and  wharves 768,306 

'  J  Interlocking  plants  and  other  signal  apparatus 114,4.'iO 

27   ) 

„„■  (  Telegraph  and  telephone  lines 285,145 

2Sh-  General  office  furniture '    .  73,654 

29.  Soliditicatioii  of  roadbed.    (Absoi-bed  in  above.) 


Total  1  to  28 $58,728,685 

30.  Engineering,    superintendence,   legal   expenses,  4j  per  cent 

"  1  to  28 2,785,036 

31.  Lo(;omotives 3,454,040 

32.  Passenger  equipment I,;i49,829 

33.  Freight  car  equipment 7,519,722 

;M.  Miscellaneous  equipment 372,477 

35.  Marine  e(iuij)meut  (none) 


Total  items  1  to  34 $74,209,789 

.36.  Freight  on  (construction  material  — absorbed. 

37.  Contingencies,  5  per  cent  1  to  :'A 3,710,479 

38.  Stores  and  supplies  in  Minnesota 2,658,976 

;39.  Interest  during  construction,  4  per  cent,  2h  years, 

items  1  to  :^5 7,420,957 

40.  Interest  in  terminal  properties,  St.  Paul  depot,  Duluth  depot, 

Minnesota  transfer 2,204,-344 

$90,204,545 


THE  MINNESOTA  EATE  CASE  691 

The  first  item  is: 

"  Lands  for  right  of  way,  yards,  and  terminals,  $21,024,562." 
This  is  for  the  bare  land,  without  structures  or  improvements 
of  any  sort,  as  the  entire  cost  of  reproduction  m  building  the 
road  and  erecting  all  the  existing  structures  is  covered  in  other 
items.  The  master  states  that  the  amount  thus  allowed  for  land 
is  made  up  as  follows : 

Terminal  properties,  St.  Paul  ai^praisenient  of  Read,  Watson  & 

Taylor,  as  modified  by  railroad  company S7,645, 100.24 

Add  5  per  cent  foi;  the  cost  of  acquisition  and  consequential 

damages 382,255.01 

Property  acquired  after  appraisement 328,725.69 

Minneapolis  appraisement  of  Elwood,  Barney,  and  Ridgeway,  as 

modified  by  railway  company 4,027,616.17 

Add  5  i^er  cent  for  acquisition  and  consequential  damages    .     .  201,380.80 

Property  acquired  after  appraisement 227,737.26 

Duluth,  appraisement  of  Stryker,  Mendenhall,  and  Little      .     .  3,602,443.43 
Add  25  per  cent  for  railway  value,  cost  of  acquisition,  and  con- 
sequential damages 900,610.85 

Total  value  of  terminals 17,315,869.45 

Lands  outside  of  terminals 3,708,093.45 

Grand  total 21,024,562.90 

The  appellants  insist  that  no  more  than  $9,498,099.27  should 
have  been  allowed. 

It  is  contended  that  the  valuation  was  made  upon  a  wrong 
theory ;  that  it  is  a  speculative  estimate  of  "  cost  of  reproduc- 
tion " ;  that  it  is  largely  in  excess  of  the  market  value  of  adja- 
cent or  similarly  situated  property ;  that  it  does  not  represent 
the  present  value,  in  any  true  sense,  but  constitutes  a  conjecture 
as  to  the  amount  which  the  railway  company  would  have  to  pay 
to  acquire  its  right  of  way,  yards,  and  terminals,  on  an  assump- 
tion, itself  madmissible,  that,  while  the  railroad  did  not  exist,  all 
other  conditions,  with  respect  to  the  agricultural  and  industrial 
development  of  the  state,  and  the  location,  population,  and  ac- 
tivities of  towns,  villages,  and  cities,  were  as  they  now  are. 

We  may  first  consider  the  basis  for  the  finding  with  respect 
to  the  "  lands  outside  terminals,"  —  that  is,  the  right  of  way  and 
station  grounds,  etc.,  outside  the  three  cities. 


(\\r2  EA1L\VA^■    rilOliLEMS 

(a)  Litxth  outsiih'  tcniiiuiih.  'V\w  coiuiilaiiKviits'  witness  was 
Mr.  C'ooiH'V,  tlic  land  connnissioiuT  of  {\\v.  company,  who  has 
chargv  of  ihe  land  grants  tor  its  cnLh'c  system,  of  its  right  of 
way  and  land  })nrchases,  and  has  had  a  wide  experience  in  con- 
neetiim  witli  land  vahies  along  the  lines  of  the  railway.  In  the 
latter  part  of  190G,  the  state  notified  the  company  to  report  the 
valne  of  its  properties,  requiring  a  statement  in  one  column  of 
the  "  market  value,"  and  in  another  column,  of  the  "  value  for 
railway  purposes."  ]\Ir.  Cooper  was  instructed  to  prepare  the 
valuation  for  this  report.  From  the  information  he  received  m 
special  inquiries,  and  his  own  knowledge,  and  following  what 
he  understood  to  be  the  instructions  from  the  state,  he  set  do\vn 
under  the  heading  of  "  market  value,"  not  the  market  value  in 
the  proper  sense  of  that  term,  but  what  in  his  judgment  it  would 
cost  the  railroad  company  to  acquire  the  land.  This  included  an 
excess  which  he  estimated  the  company  would  have  to  pay  over 
the  market  value  of  contiguous  and  similar  property  if  it  were 
called  upon  to  undertake  such  a  reproduction  of  its  right  of  way. 
It  did  not,  however,  embrace  an  allowance  for  payments  which 
might  have  to  be  made  for  improvements  that  possibly  might  be 
found  upon  the  property  in  such  case,  or  for  the  consequential 
or  severance  damages  which  might  possibly  have  to  be  met,  or 
for  the  expense  of  acquisition.  These  supposed  additional  out- 
lays he  undertook  to  estimate.  For  this  purpose  he  increased 
the  "  market  value  "  as  stated  (in  the  case  of  agricultural  lands 
generally  multiplying  it  by  three),  and  thus  reached  the  amount 
set  down  as  the  "  value  for  railway  purposes."  As  it  serves 
clearly  to  illustrate  the  theory  upon  which  the  land  valuations 
were  made,  we  make  the  followmg  excerpts  from  Mr.  Cooper's 
testimony : 

The  Master.   When  you  speak  of  value,  you  mean  cost  of  purchase? 

Witness.  Cost  of  purchase ;  we  are  using  the  word  "  value  "  somewhat 
wrongly,  as  we  are  talking  along  here.  It  is  the  cost  of  ^^urchasiug  that 
property  to-day. 

Witness.  The  word  "  value  "  does  n't  seem  to  me  to  fit  this  case,  because 
all  the  time  we  are  figuring  on  the  cost  of  reproducing  this  property,  and 


THE  MINNESOTA  RATE  CASE  G93 

our  instructions  from  the  state  use  the  word  "  reproduce."  Now,  if  a  rail- 
road company  could  buy  property  at  what  is  generally  considered  its  value, 
the  word  "  value  "  would  fit  in  all  right,  but  there  is  this  excess  which  a 
railroad  company  has  to  pay  beyond  what  is  generally  accepted  as  its  value 
which  increases  the  cost  of  reproducing  a  railroad  jiroperty. 

Q.  And  this  excess  which  you  now  speak  of  is  included  in  your  market 
values  as  reported  to  the  state  and  used  in  your  testimony  ? 

A.  That  is  right.  .  .  . 

Q.  .  .  .  Well,  now,  does  the  term  "  market  value  "  as  you  have  used  it 
in  making  this  report  to  the  state  and  in  your  testimony  here  have  the 
same  meaning,  or  is  it  used  in  the  same  sense  with  reference  to  the  values 
you  have  fixed  and  reported  to  the  state  for  projaerties  on  the  right  of  way 
outside  of  the  terminals  and  outside  of  the  larger  cities  ? 

A.  Oh,  yes. 

Q.  As  in  the  cities  here  ? 

A .  Yes ;  the  same  rule  was  applied  all  through  in  the  Minnesota 
valuations. 

Q.  Therefore,  your  judgment  as  to  the  value  of  the  railroad  projierty  is 
always  that  it  is  higher  than  the  value  of  contiguous  property  ? 

A.  Yes,  yes,  that  is  true.   .  .  . 

Q.  So  that,  in  every  case,  what  you  call  the  market  value  is  the  value 
of  contiguous  or  similarly  situated  propei-ty,  with  an  additional  amount 
which  a  railroad  company  is  ordinarily  compelled  to  pay  ? 

A.  That  is  right.  .  .  . 

Q.  You  have  put  into  the  market  value  the  excess  which  a  railroad 
company  pays  for  land? 

A.  That  is  correct. 

Q.  Then,  when  you  multiply  that  by  3,  you  are  multiplying  by  3  one  of 
the  elements  going  to  make  up  excessive  cost  to  a  railroad  company  ? 

A.  That  is  right.  .  .  . 

Q.  And  you  are  unable  to  state  how  much  upon  the  average  you  have 
added  to  the  true  or  normal  market  value,  to  allow  for  the  additional 
amount  which  the  railroad  company  would  have  to  pay  upou  the  hypothesis 
that  it  is  now  compelled  to  purchase  the  land  ? 

A.  That  is  correct. 

Q.  And  then  having  determined  to  your  satisfaction  at  what  figure  or 
sum  you  would  place  the  market  value  of  this  property  to  the  railroad 
company,  as  you  have  described,  you  have  added  another  sum  for  sever- 
ance damage,  cost  of  improvements  unnecessary  to  the  company,  easements 
in  abutting  property,  and  general  expenses  ? 

A.  That  is  correct. 

Q.  And  you  have  determined  that,  in  agricultural  communities,  this 
second  addition  is  shown  by  the  use  of  the  multiple  3  ? 


C.'.ll  l;AIL\V.\^■    I'KOl'.I.KMS 

I.  I  think  tilt'  iiuiltijilc  ot'  '•>  is  too  low,  and  I  so  testified  in  this  case 
Wlien  you  are  ;4oin,n'  thn)u,i;h  a  hii^ldy  euUivated  eoiintry  1  tliiidc  the 
nudtiplier  ot"  'A  is  not  enouj^h. 

(^.  lint  that  is  what  yon  nscd  Im-  the  |im|i(ise  u[  the  right  of  way  value 
of  land  through  the  agricultuial  coniiiuinitics? 

A.  That  is  right,  in  this  state. 

Q.  And  in  the  cities,  in  the  tliree  large  tcrniiiials,  you  have  added  to 
what  you  describe  as  the  market  value  of  the  lands  to  the  railroad  com- 
pany, ascertained  as  described  by  yon  already,  the  amount  necessary  to 
produce  the  difference  shown  in  your  testimony  between  tlu;  nuirket  value 
of  the  terminals  and  the  right  of  way  value? 

.1 .  That  is  right. 

Q.  And  while  you  are  able  to  show,  aiul  we  can  ascertain  from  an  in- 
spection of  your  testimony,  the  amount  of  tin;  difference  between  the 
nuirket  value  to  the  railroad  company,  as  j'ou  have  described,  and  the 
right  of  way  value,  and,  in  the  rural  communities  or  agricultural  districts, 
the  difference  between  the  market  value  to  you  and  the  right  of  way  value, 
there  is  nothing  in  any  of  your  exhibits  which  will  show,  nor  are  you  now 
prepared  to  state,  the  diffei'ence  in  what  might  be  termed  the  normal,  true, 
ordinary  market  value  of  the  lands  to  the  ordinary  individual,  and  the  sum 
which  you  have  fixed  as  the  market  value  to  the  railroad  company  if  it 
were  now  compelled  to  purchase. 

.  1 .  That  is  correct. 

The  "  market  value  "  of  the  lands  (outside  of  the  three  cities) 
thus  fixed  and  reported  to  the  state  was  $2,008,491.50,  and  the 
increased  amount  estimated,  in  the  manner  stated,  which  was 
reported  as  the  "value  for  railway  purposes  "  was  $4,944,924.60. 
The  latter  amount  was  submitted  by  the  complamants  in  this 
case  as  the  value  of  the  lands.  The  master  thought  that  the 
complainants'  witness  used  too  large  a  multiplier,  and  allowed 
75  per  cent  of  tlie  amount  thus  claimed,  or  $3,708,693.45,  stating 
tliat  this  was  determined  upon  as  the  "  fair  reproduction  value 
of  the  property."  This  allowance,  it  will  be  observed,  was  about 
.$1,700,000  in  excess  of  Mr.  Cooper's  estimate  of  "  market  value  " 
as  that  term  was  used  hi  making  the  report. 

(b)  Terminal  properties.  This  term  is  used  to  designate  the 
lands  foi'  tlic  right  of  way,  yards,  and  terminals  in  St.  Paul,  Min- 
neapolis, and  Dulutli.  The  total  original  cost  of  these  lands  to 
the  company  (according  to  its  statement  based  on  the  best  in- 
formation obtainable),  including   purchases  to  April  30,  1908, 


THE  MINNESOTA  EATE  CASE  695 

was  $4,527,228.76,  The  master  allowed  as  their  value,  apart 
from  the  miprovements  made  by  the  company,  which,  as  we  have 
said,  were  embraced  iii  the  other  items  of  reproduction  cost,  the 
sum  of  $17,315,869.45. 

In  preparmg  the  valuation  for  the  report  to  the  state,  Mr. 
Cooper  employed  real  estate  men  in  each  of  the  cities  to  make 
an  appraisement.  He  instructed  them,  as  he  testifies,  "  to  make  a 
conservative  report  of  the  cost  of  reproducing  the  properties 
owned  by  the  company  in  each  of  their  respective  cities."  They 
divided  the  property  into  districts  and  reported  their  estimate  of 
units  of  value,  as,  for  example,  by  the  square  foot.  Mr.  Cooper 
took  these  reports,  discussed  their  valuations  with  the  appraisers, 
and,  aided  by  his  own  knowledge,  formed  an  independent  judg- 
ment, m  no  case  increasing  and  in  some  instances  (with  respect 
to  certain  St.  Paul  and  INIhnieapolis  property)  reducing  tlie  ap- 
praisers' values.  He  then  set  forth  under  the  heading  "  market 
value,"  in  the  report  to  the  state,  as  described  in  the  testimony 
we  have  quoted,  his  estimate  of  what  it  would  cost  the  company 
to  purchase  these  lands,  exclusive  of  improvements  that  might 
be  upon  them,  severance  and  consequential  damages  and  ex- 
penses incident  to  acquisition.  The  amounts  he  thus  fixed  were 
as  follows:  for  the  property  m  St.  Paul  $7,645,100.24  ;  in  Min- 
neapolis, .$4,027,616.17;  in  Duluth,  $3,555,593.93.  In  the  case 
of  the  St.  Paul  and  Minneapolis  properties  the  amounts  are  pre- 
cisely those  adopted  by  the  master  in  his  findings,  and  to  this  he 
adds  5  per  cent  to  cover  cost  of  acquisition  and  consequential 
damages.  The  master  was  of  the  opinion  that  the  appraisers  of 
these  properties  were  "  fully  impressed  with  their  value  for  rail- 
road purposes  "  and  that  their  appraisement  as  verified  by  them 
before  him  and  modified  by  the  railway  company  "  is  a  generous 
valuation,  and  should  be  accepted  as  full  railroad  value  of  the  ter- 
minal properties,"  and  it  was  so  accepted  with  the  addition  above 
stated.  With  respect  to  the  Duluth  property,  where  the  appraise- 
ment appears  to  have  rested  upon  the  ordinary  values  of  real 
estate,  the  master  sets  forth  as  the  appraised  value,  $3,<I02,443.43, 
to  wliich  he  adds  25  per  cent,  or  $900,610.85,  "for  railway 
value,  cost  of  acquisition,  and  consequential  damages." 


(',<)()  KAii.\\A\'  ri;()r.ij:MS 

In  ivviowiiiLj;  tlu'  liiulinj^s,  tlu'  coiirl  Ix'low  rcacluHl  tlic  con- 
clusion  that 

tlu'  master  in  offeot  foimd  tli;it  tlio  cost  of  rcinnduclioii  and  tin'  present 
value  of  the  lanils  for  tlif  Itiiuiiials  in  tlic  llnce  ^reat  cities,  inchidini;' 
therein  all  cost  of  aeiiuisition,  ct)nse(iueiitial  damages,  and  value  for  rail- 
road use  whieh  he  allowed,  WHS  only  about  80  per  cent  more  than  the 
normal  value  of  the  lands  in  sales  between  private  parties.  He  found  the 
value  of  the  lands  outside  the  terminals  to  be  only  twice  their  normal  value. 

From  our  cxauiiiiation  of  the  evidence  we  are  unable  to  con- 
clude that  the  excess  stated  may  be  thus  limited.  What  is  termed 
the  normal  value  does  not  satisfactorily  appear.  It  further  will 
be  observed — from  the  summary  of  valuations  we  have  set  forth 
in  the  margin  ^  —  that  the  amount  thus  allowed  in  item  1  for 
lands,  yards,  and  terminals,  both  in  and  out  of  the  three  cities 
(S21, 024,562),  was  included  in  the  total  on  which  4^  per  cent 
was  allowed  in  item  30  for  "  engineering,  superintendence,  legal 
expenses,"  and  again  was  included  in  the  total  on  which  5  per 
cent  was  allowed  in  item  37  for  "contingencies,"  and,  in  addi- 
tion, was  included  in  the  total  on  which  10  per  cent  was  allowed 
in  item  39  for  "  interest  during  construction." 

These  are  the  results  of  the  endeavor  to  apply  the  cost-of- 
reproduction  method  in  determining  the  value  of  the  right  of 
way.  It  is  at  once  apparent  that,  so  far  as  the  estimate  rests 
upon  a  supposed  compulsory  feature  of  the  acquisition,  it  can- 
not be  sustained.  It  is  said  that  the  company  would  be  compelled 
to  pay  more  than  what  is  the  normal  market  value  of  property 
ui  transactions  between  private  parties ;  that  it  would  lack  the 
freedom  they  enjoy,  and,  in  view  of  its  needs,  it  would  have  to 
give  a  higher  price.  It  is  also  said  that  this  price  would  be  in 
excess  of  the  present  market  value  of  contiguous  or  similarly 
situated  property.  It  might  well  be  asked,  who  shall  describe 
the  conditions  that  would  exist,  or  the  exigencies  of  the  hypo- 
thetical owners  of  the  property,  on  the  assumption  that  the 
railroad  were  removed  ?  But,  aside  from  tins,  it  is  impossible 
to  assume,  in  making  a  judicial  finding  of  what  it  would  cost  to 
acquire   the   property,  that  the  company  would  be  compelled 

1  See  note,  p.  690. 


THE   MINNESOTA  RATE  CASE  697 

to  pay  more  than  its  fair  market  value.  It  is  equipped  with  the 
governmental  power  of  emment  domain.  In  view  of  its  public 
purpose,  it  has  been  granted  this  privilege  in  order  to  prevent 
advantage  being  taken  of  its  necessities.  It  would  be  free  to 
stand  upon  its  legal  rights,  and  it  cannot  be  supposed  that  they 
would  be  disregarded. 

It  is  urged  that,  in  this  view,  the  company  would  be  bound 
to  pay  the  "  railway  value  "  of  the  property.  But,  supposing 
the  railroad  to  be  obliterated  and  the  lands  to  be  held  by  others, 
the  owner  of  each  parcel  would  be  entitled  to  receive,  on  its  con- 
demnation, its  fair  market  value  for  all  its  available  uses  and 
purposes.  United  States  v.  Ghandler-Dunhar  Water  Power  Co., 
decided  May  26,  1913  [229  U.  S.  — ,  ante,  667,  33  Sup.  Ct. 
Rep.  667].  If,  in  the  case  of  any  such  owner,  his  property  had 
a  peculiar  value  or  special  adaptation  for  railroad  purposes,  that 
would  be  an  element  to  be  considered.  Mississippi  cj'  R.  River 
Boom  Co.  V.  Patterson,  98  U.  S.  403,  25  L.  ed.  206;  Shoemakers. 
United  States,  147  U.  S.  282,  37  L.  ed.  170,  13  Sup.  Ct.  Rep. 
361 ;  United  States  v.  Cliandler-Dunhar  Water  Potver  Co.,  supra. 
But  still  the  inquiry  would  be  as  to  the  fair  market  value  of  the 
property  ;  as  to  what  the  owner  had  lost,  and  not  what  the  taker 
had  gained.  Boston  Chamber  of  Commerce  v.  Boston,  217  U.  S. 
189,  195,  54  L.  ed.  725,  727,  30  Sup.  Ct.  Rep.  459.  The  owner 
would  not  be  entitled  to  demand  payment  of  the  amount  which 
the  property  might  be  deemed  worth  to  the  company ;  or  of  an 
enhanced  value  by  vu-tue  of  the  purpose  for  which  it  was  taken  ; 
or  of  an  increase  over  its  fair  market  value,  by  reason  of  any 
added  value  supposed  to  result  from  its  combination  with  tracts 
acquired  from  others,  so  as  to  make  it  a  part  of  a  continuous 
railroad  right  of  way  held  in  one  ownership.  United  States  v. 
Chandler-Dunhar  Water  Potver  Co.  and  Boston  Chamber  of  Com- 
merce V.  Boston,  supra.  There  is  no  evidence  before  us  from 
which  the  amount  which  would  properly  be  allowable  in  such 
condemnation  proceedings  can  be  ascertained. 

Moreover,  it  is  manifest  that  an  attempt  to  estimate  what 
would  be  the  actual  cost  of  acquiring  the  right  of  way  if  the 
railroad  were  not  there  is  to  indulge  in  mere  speculation.    The 


008  KAll.W  A\     I'Kor.LE.MS 

railn>;ul  has  lonu^  hvvn  rstahlislied ;  to  it  liave  bei'U  linked 
the  activities  of  auricuUuiv,  industry,  and  trade.  (\)nnnnnities 
have  \o\\'^  l)een  drpenth'nt  upon  its  service,  and  their  ^'rowth 
and  devel()[)nK'nt  have  been  conditioned  upon  th(^  iiu-ihties  it 
has  [)rovi(U'd.  The  uses  of  property  in  the  connnunities  which 
it  serves  ai'c  to  a  hu-ge  de<;rei'  (h'terniined  hy  it.  'i'he  ^■ahu's  of 
property  ahniof  its  hue  largely  depend  upon  its  existence.  It  is 
an  integral  part  of  the  conununal  life.  The  assumption  of  its 
nonexistence,  and  at  the  same  time  that  the  values  tliat  rest 
upon  it  remain  unchanged,  is  impossible  and  cannot  be  enter- 
tained. The  conditions  of  ownership  of  the  property  and  the 
amounts  wliicli  \\()uld  have  to  be  paid  in  accpiiring  the  right  of 
way,  supposing  the  railroad  to  be  removed,  are  wholly  beyond 
reach  of  any  process  of  rational  determination.  The  cost-of- 
reproduction  method  is  of  service  in  ascertaining  the  present 
value  of  the  plant,  when  it  is  reasonably  applied  and  when  tlie 
cost  of  reproducing  tlie  property  may  be  ascertained  with  a 
proper  degree  of  certainty.  Bnt  it  does  not  justify  the  accept- 
ance of  results  which  depend  upon  mere  conjecture.  It  is  fun- 
damental that  the  judicial  power  to  declare  legislative  action 
invalid  upon  constitutional  grounds  is  to  be  exercised  only  in 
clear  cases.  The  constitutional  invalidity  mnst  be  manifest,  and 
if  it  rests  npon  disputed  questions  of  fact,  the  invalidating 
facts  mnst  be  proved.  And  this  is  trne  of  asserted  value  as  of 
other  facts. 

The  evidence  in  these  cases  demonstrates  that  the  appraise- 
ments of  the  St.  Paul  and  Minneapolis  properties  which  were 
accepted  by  the  master  were  in  substance  appraisals  of  what 
was  considered  to  be  the  peculiar  value  of -the  railroad  right  of 
way.  Efforts  to  express  the  results  in  the  terms  of  a  theory 
of  cost  of  reproduction  fail,  as  naturally  they  must,  to  alter  or 
obscure  the  essential  character  of  the  work  undertaken  and 
performed.  Presented  with  an  impossible  hypothesis,  and  en- 
deavormg  to  conform  to  it,  the  appraisers  —  men  of  ability  and 
experience  —  were  manifestly  seeking  to  give  their  best  judg- 
ments as  to  what  the  railroad  right  of  way  was  worth.  And 
doubtless  it  was  believed  that  it  might  cost  even  more  to  acquire 


THE  MINNESOTA  RATE  CASE  699 

the  property,  if  one  attempted  to  buy  into  the  cities  as  they  now 
exist,  and  all  the  difficulties  that  might  be  imagined  as  incident 
to  such  a  "  reproduction  "  were  considered.  The  railroad  right 
of  way  was  conceived  to  be  a  property  sni  generis,  "  a  large  body 
of  land  in  a  continuous  ownership,"  representing  one  of  the 
"highest  uses"  of  property,  and  possessing  an  exceptional  value. 
The  estimates  before  us,  as  approved  by  the  master,  with  his  in- 
crease of  25  per  cent  in  the  case  of  the  Dulutli  property,  must 
be  taken  to  be  estimates  of  the  "  railway  value  "  of  the  land ; 
and  whether  or  not  this  is  conceived  of  as  paid  to  other  owners 
upon  a  hypothetical  reacquisition  of  the  property  is  not  control- 
ling when  we  come  to  the  substantial  question  to  be  decided. 

That  question  is  whether,  in  determining  the  fair  present  value 
of  the  property  of  the  railroad  company  as  a  basis  of  its  charges 
to  the  public,  it  is  entitled  to  a  valuation  of  its  right  of  way  not 
only  in  excess  of  the  amount  invested  in  it,  but  also  in  excess 
of  the  market  value  of  contiguous  and  similarly  situated  property. 
For  the  purpose  of  making  rates,  is  its  land  devoted  to  the  pub- 
lic use  to  be  treated  (irrespective  of  improvements)  not  only  as 
increasing  in  value  by  reason  of  the  activities  and  general  pros- 
perity of  the  community,  but  as  constantly  outstripping  in  this 
increase,  all  neighboring  lands  of  like  character,  devoted  to  other 
uses  ?  If  rates  laid  l)y  competent  authority,  state  or  national, 
are  otherwise  just  and  reasonable,  are  they  to  be  held  to  be  un- 
constitutional and  void  because  they  do  not  permit  a  return  upon 
an  mcrement  so  calculated  ? 

It  is  clear  that  in  ascertaining  the  present  value  we  are  not 
limited  to  the  consideration  of  the  amount  of  the  actual  invest- 
ment. If  that  has  been  reckless  or  improvident,  losses  may  be 
sustained  which  the  community  does  not  underwrite.  As  the 
company  may  not  be  protected  in  its  actual  mvestment,  if  the 
value  of  its  property  be  plainly  less,  so  the  making  of  a  just 
return  for  the  use  of  the  property  involves  the  recognition  of 
its  fair  value  if  it  be  more  than  its  cost.  The  property  is  held 
m  private  ownership,  and  it  is  that  property,  and  not  the  origi- 
nal cost  of  it,  of  wliich  the  owner  may  not  be  deprived  without 
due  process  of  law.   But  still  it  is  property  employed  ui  a  public 


,0(1  KAll,\\A^    ru'or.i.KMs 

i-alling",  sultji'ct  to  l;o\  friiincnlal  ri'gulatioii,  and  wliilc,  uiuler 
the  ji^uise  of  such  iCL^iilation,  it-  may  not  \)v  coiilisraliMl,  it  is 
0(|nally  tnic  lliai  [\\v\v  is  atlaclu'd  to  its  use  tlu'  coiulition  that 
(.'hargvs  to  the  public  shall  not  he  unreasoiuihli!.  And  where  the 
in(|niiT  is  as  to  the  fair  value  of  the  property,  in  order  to  deter- 
mine the  reasonableness  of  the  return  allowed  by  the  rate-making 
power,  it  is  not  admissible  to  attribute  to  the  property  owned  by 
the  carriers  a  speculative  increment  of  value,  over  the  amount 
invested  in  it  and  beyond  the  valne  of  similar  property  owned  by 
others,  solely  by  reason  of  the  fact  that  it  is  used  in  the  pub- 
lic service.  That  would  be  to  disregard  the  essential  conditions 
of  the  public  use,  and  to  make  the  [)ublie  use  destructive  of  the 
public  right. 

The  increase  sought  for  "  railway  value  "  in  these  cases  is  an 
increment  over  all  outlays  of  the  carrier  and  over  the  values  of 
similar  land  in  the  vicinity.  It  is  an  increment  which  cannot  be 
referred  to  any  known  criterion,  but  nuist  rest  on  a  mere  expres- 
sion of  judgment  which  finds  no  proper  test  or  standard  in  the 
transactions  of  the  business  world.  It  is  an  increment  which,  in 
the  last  analysis,  nuist  rest  on  an  estimate  of  the  value  of  the 
railroad  use  as  compared  with  other  business  uses;  it  involves 
an  appreciation  of  the  returns  from  rates  (when  rates  themselves 
are  in  dispute)  and  a  sweeping  generalization  embracmg  sub- 
stantially all  the  activities  of  tlie  community.  For  an  allowance 
of  this  character  there  is  no  warrant. 

Assuming  that  the  company  is  entitled  to  a  reasonable  share 
in  the  general  prosperity  of  the  communities  which  it  serves, 
and  thus  to  attribute  to  its  property  an  increase  in  value,  still 
the  increase  so  allowed,  apart  from  any  improvements  it  may 
make,  cannot  properly  extend  beyond  the  fair  average  of  the 
normal  market  value  of  land  in  the  vicinity  having  a  similar 
character.  Otherwise  we  enter  the  realm  of  mere  conjecture. 
We  therefore  hold  that  it  was  error  to  base  the  estimates  of 
value  of  the  right  of  way,  yards,  and  terminals  upon  the  so- 
called  "  railway  value  "  of  the  property.  The  company  would 
certainly  have  no  ground  of  complaint  if  it  were  allowed  a  value 
for  these  lands  equal  to  the  fair  average  market  value  of  similar 


THE  MINNESOTA  EATE  CASE  701 

land  in  the  vicinity,  without  additions  by  the  use  of  multipliers, 
or  otherwise,  to  cover  hypothetical  outlays.  The  allowances 
made  below  for  conjectural  cost  of  acquisition  and  consequential 
damages  must  be  disapproved ;  and,  in  this  view,  we  also  thmk 
it  was  error  to  add  to  the  amount  taken  as  the  present  value  of 
the  lands  the  further  sums,  calculated  on  that  value,  which  were 
embraced  in  the  items  of  "  engineering,  supermtendence,  legal 
expenses,"  "contingencies,"  and  "interest  during  construction." 

By  reason  of  the  nature  of  the  estimates,  and  the  points  to 
which  the  testimony  was  addressed,  the  amount  of  the  fair  value 
of  the  company's  land  cannot  be  satisfactorily  determined  from 
the  evidence,  but  it  suihciently  appears,  for  the  reasons  we  have 
stated,  that  the  amounts  found  were  largely  excessive. 

Finding  this  defect  in  the  proof,  it  is  not  necessary  to  consider 
the  objections  which  relate  to  the  sources  from  which  the  prop- 
erty was  derived  or  its  mode  of  acquisition,  or  those  which  are 
urged  to  the  inclusion  of  certain  lands  which  it  is  said  were  not 
actually  used  as  a  part  of  the  plant ;  and  we  express  no  opmion 
upon  the  merits  of  these  contentions. 

The  property  other  than  land,  as  the  detailed  statement  shows, 
embraced  all  items  of  construction,  including  roadbed,  bridges, 
tunnels,  etc.,  structures  of  every  sort,  and  all  appliances  and 
equipment.  The  cost  of  reproduction  new  was  ascertamed  by 
reference  to  the  prices  for  such  work  and  property.  In  view  of 
the  range  of  the  questions  we  have  been  called  upon  to  consider, 
we  shall  not  extend  this  opinion  for  the  purpose  of  reviewing 
this  estimate,  or  of  passing  upon  exceptions  to  various  items  in 
it,  as  their  disposition  would  not  affect  the  result. 

The  master  allowed  the  cost  of  reproduction  new  without  de- 
duction for  depreciation.  It  was  not  denied  that  there  was  depre- 
ciation in  fact.  As  the  master  said,  "  everything  on  and  above 
the  roadbed  depreciates  from  wear  and  weather  stress.  The  life 
of  a  tie  is  from  eight  to  ten  years  only.  Structures  become 
antiquated,  inadequate,  and  more  or  less  dilapidated.  Ballast 
requires  renewal,  tools  and  machinery  wear  out,  cars,  locomo- 
tives, and  equipment,  as  time  goes  on,  are  worn  out  or  discarded 
for  newer  types."    But  it  was  found  that  this  depreciation  was 


7(|-J  KAILWAV   rUor.LHMS 

nioiT  iliaii  (»rrsrt  l)y  appreciation;  tiiat  'Mlu'  roadbed  was  coii- 
stautlv  iiicreasiiiL;'  in  value'":  tiial  it  "ht'conies  solidilied,  eiii- 
bankiiUMits  and  slopes  t)r  cxeavulions  heeonu!  settled  and  stable 
and  so  the  better  resist  the  effects  of  rains  and  frost";  that  it 
"beeonu's  adjustiMl  to  surface  dramage,  and  the  adjustment  is 
made  permanent  by  concrete  structures  and  rip-rap  "  ;  and  that 
in  other  ways,  a  roadbed  long  m  use  "  is  far  more  valuable  than 
one  newly  constructed."  It  was  said  that  "a  large  part  of  the 
depreciation  is  taken  care  of  by  constant  repairs,  renewals,  ad- 
ditions, and  replacements,  a  sullicient  sum  behig  annually  set 
aside  and  devoted  to  this  purpose,  so  that  this,  with  the  applica- 
tion of  roadbed  and  adaptation  to  the  needs  of  the  country  and 
of  the  public  served,  together  with  working  capital  .  .  .  fully 
offsets  all  depreciation  and  lenders  the  physical  properties  of  the 
road  not  less  valuable  than  their  cost  of  reproduction  new."  And 
in  a  further  statement  upon  the  point,  the  "  knowledge  derived 
from  experience  "  and  "  readiness  to  serve  "  were  mentioned  as 
additional  offsets. 

We  cannot  approve  this  disposition  of  the  matter  of  deprecia- 
tion. It  appears  that  the  master  allowed,  in  the  cost  of  reproduc- 
tion, the  sura  of  $1,613,612  for  adaptation  and  solidification  of 
roadbed,  this  being  included  in  the  item  of  grading,  and  being 
the  estimate  of  the  engineer  of  the  state  commission  of  the  proper 
amount  to  be  allowed.  It  is  also  to  be  noted  that  the  depreciation 
in  question  is  not  that  which  has  been  overcome  by  repairs  and 
replacements,  but  is  the  actual  existing  depreciation  in  the  plant 
as  compared  with  the  new  one.  It  would  seem  to  be  inevitable 
that  in  many  parts  of  the  plant  there  should  be  such  depreciation, 
as,  for  example,  in  old  structures  and  equipment  remaining  on 
hand.  And  when  an  estimate  of  value  is  made  on  the  basis  of 
reproduction  new,  the  extent  of  existing  depreciation  should  be 
shown  and  deducted.  This  apparently  was  done  in  the  statement 
submitted  by  this  company  to  the  Interstate  Commerce  Commis- 
sion in  the  Spokane  Hate  Case  in  connection  with  an  estimate  of 
the  cost  of  reproduction  of  the  entire  system  as  of  March,  1907. 
See  15  Inters.  Com.  Rep.  395,  396.  In  the  present  case,  it 
appears  that  the  engmeer  of  the  state  commission  estimated  the 


THE  MINNESOTA  RATE  CASE  703 

depreciation  in  the  property  at  between  eight  and  nine  million 
dollars.  If  there  are  items  entering  into  the  estimate  of  cost 
which  should  be  credited  with  appreciation,  this  also  should 
appear,  so  that  instead  of  a  broad  comparison  there  should  be 
specific  findings  sliowmg  the  items  which  enter  mto  the  account 
of  physical  valuation  on  both  sides. 

It  must  be  remembered  that  we  are  concerned  with  a  charge 
of  confiscation  of  property  by  the  denial  of  a  fair  return  for  its 
use  ;  and  to  determine  the  truth  of  the  charge  there  is  sought  to 
be  ascertained  the  present  value  of  the  property.  The  realization 
of  the  benefits  of  property  must  always  depend  m  large  degree 
on  the  ability  and  sagacity  of  those  who  employ  it ;  but  the 
appraisement  is  of  an  instrument  of  public  service,  as  property, 
not  of  the  skill  of  the  users.  And  when  particular  physical  items 
are  estimated  as  worth  so  much  new,  if  in  fact  they  be  depreci- 
ated, this  amount  should  be  found  and  allowed  for.  If  this  is  not 
done,  the  physical  valuation  is  manifestly  mcomplete.  And  it 
must  be  regarded  as  incomplete  in  this  case.  Knoxville  v.  Knox- 
viUe  Water  Co.  212  U.  S.  1,  10,  53  L.  ed.  371,  378,  29  Sup.  Ct. 
Rep.  148. 

A^yportionment  of  values.  As  the  rate  of  net  return  from  the 
entire  Minnesota  business  (interstate  and  mtrastate)  during  the 
test  year  was  6.021  per  cent  on  a  valuation  of  S90, 204,545,  and 
would  be  greater  if  computed  upon  a  less  value,  we  are  brought 
to  the  question  whetlier  the  methods  of  apportionment  adopted 
are  so  clearly  appropriate  and  accurate  as  to  require  a  finding  of 
confiscation  of  property  used  in  the  intrastate  busmess. 

The  apportionment  of  the  value  of  the  property,  as  found,  be- 
tween the  interstate  and  mtrastate  business,  was  made  upon  the 
basis  of  the  gross  revenue  derived  from  each.  This  is  a  simple 
method,  easily  applied,  and  for  that  reason  has  been  repeatedly 
used.  It  has  not,  however,  been  approved  by  this  court,  and  its 
correctness  is  now  challenged.  Doubtless,  there  may  be  cases 
where  the  facts  would  show  confiscation  so  convincingly  in  any 
event,  after  full  allowance  for  possible  errors  in  computation,  as 
to  make  negligible  questions  arising  from  the  use  of  particular 
methods.    But  this  case  is  not  of  that  character. 


704  KAll,\\.\\     PKOIW.lvMS 

In  support  of  this  nu'thod,  it  is  said  tluit  a  division  of  the 
value  of  the  piopi'ity  according  to  gross  earnings  is  a  division 
according  to  the  "  vahie  of  the  use,"  and  therefore  proper.  lUit 
it  would  seem  to  be  clear  that  the  value  of  the  use  is  not  shown 
by  i/n»<s  earnings.  The  gross  earnings  may  be  consumed  by 
expenses,  leavhig  little  or  no  prolit.  If,  for  example,  the  mtra- 
state  rates  were  so  far  reduced  as  to  leave  no  net  profits,  and 
the  only  profitable  business  was  the  interstate  business,  it  cer- 
tamly  could  not  be  said  that  the  value  of  the  use  was  measured 
by  the  gross  revenue. 

It  is  not  asserted  that  the  relation  of  expense  to  revenue  is  the 
same  m  both  businesses ;  on  the  contrary,  it  is  insisted  that  it  is 
widely  different.  The  master  found  that  the  revenue  per  ton-mile 
in  the  intrastate  business,  as  compared  with  the  revenue  per  ton- 
mile  in  the  interstate  business,  w^as  as  1.4387  to  1.0000.  And, 
on  Ills  assumption  as  to  the  extra  cost  of  doing  the  mtrastate 
business,  he  reached  the  conclusion  that  the  cost  per  ton-mile  in 
proportion  to  the  revenue  per  ton-mile  in  the  intrastate  business, 
as  compared  with  the  interstate  business,  was  as  1.7377  to  1.0000. 
It  is  contended,  according  to  the  computations,  that  only  a  little 
over  10  per  cent  of  the  entire  net  revenue  of  the  test  year 
($5,431,514.66)  was  made  in  the  intrastate  business,  and  that 
90  per  cent  thereof  was  made  in  the  interstate  business ;  but 
approximately  21  per  cent  of  the  total  value  of  the  property  was 
assigned  to  the  intrastate  business. 

If  the  property  is  to  be  divided  according  to  the  value  of  the 
use,  it  is  plain  that  the  gross-earnings  method  is  not  an  accurate 
measure  of  that  value. 

In  CMcac/o,  31.  cj-  S't.  P.  E.  Co.  v.  Tompkins,  176  U.  S.  167, 
44  L.  ed.  417,  20  Sup.  Ct.  Rep.  336,  the  court  below  had  found 
the  value  of  the  plaintiffs'  property  in  South  Dakota  to  be 
$10,000,000,  and  liad  divided  it  between  the  mterstate  and  intra- 
state business,  according  to  the  gross  receipts  from  each.  Mr. 
Justice  Brewer,  in  delivering  the  opuiion  of  the  court,  after 
referring  to  the  result  reached,  said : 

Such  a  result  indicates  that  there  is  something  wrong  in  the  process  by 
which  the  conclusion  is  reached.    That  there  was,  can  be  made  apparent 


THE  MINNESOTA  RATE  CASE  705 

by  further  computations,  and  in  them  we  will  take  even  numbers  as  more 
easy  of  comjirehension.  Suppose  the  total  value  of  the  property  in  South 
Dakota  was  $10,000,000,  and  the  total  receipts  both  from  interstate  and 
local  business  were  $1,000,000,  one  half  from  each.  Then,  according  to  the 
method  pursued  by  the  trial  court,  the  value  of  the  property  used  in  earn- 
ing local  receipts  would  be  $5,000,000,  and  the  per  cent  of  receipts  to  value 
would  be  10  per  cent.  The  interstate  receipts  being  unchanged,  let  the 
local  receipts  by  a  proposed  schedule  be  reduced  to  one  fifth  of  what  they 
had  been,  so  that  instead  of  receiving  $500,000  the  company  only  receives 
$100,000.  The  total  receipts  for  interstate  and  local  business  being  then 
$600,000,  the  valuation  of  $10,000,000,  divided  between  the  two,  would  give 
to  the  property  engaged  in  earning  interstate  receipts  in  round  numbers 
$8,333,000,  and  to  that  engaged  in  earning  local  receipts  $1,667,000.  But 
if  $1,667,000  worth  of  property  earns  $100,000,  it  earns  6  per  cent.  In 
other  words,  although  the  actual  receipts  from  local  business  are  only  one 
fifth  of  what  they  were,  the  earning  capacity  is  three  fifths  of  what  it  was. 
And  turning  to  the  other  side  of  the  problem,  it  appears  that  if  the  value 
of  the  property  engaged  in  interstate  business  is  to  be  taken  as  $8,333,000, 
and  it  earned  $500,000,  its  earning  capacity  was  the  same  as  that  employed 
in  local  business  —  6  per  cent.  So  that  although  the  rates  for  interstate 
business  be  undisturbed,  the  process  by  which  the  trial  court  reached  its 
conclusion  discloses  the  same  reduction  in  the  earning  capacity  of  the 
property  employed  in  interstate  business  as  in  that  employed  in  local  busi- 
ness, in  which  the  rates  are  reduced.    Id.,  pp.  176,  177. 

The  value  of  the  use,  as  measured  by  return,  cannot  be  made 
the  criterion  when  the  return  itself  is  in  question.  If  the  return, 
as  formerly  allowed,  be  taken  as  the  basis,  then  the  validity  of 
the  state's  reduction  would  have  to  be  tested  by  the  verj-  rates 
which  the  state  denounced  as  exorbitant.  And,  if  the  return  as 
permitted  under  the  new  rates  be  taken,  then  the  state's  action 
itself  reduces  the  amount  of  value  upon  which  the  fairness  of 
the  return  is  to  be  computed. 

When  rates  are  m  controversy,  it  would  seem  to  be  necessary 
to  find  a  basis  for  a  division  of  the  total  value  of  the  property 
independently  of  revenue,  and  this  must  be  found  in  the  use 
that  is  made  of  the  property.  That  is,  there  should  be  assigned 
to  each  business  that  proportion  of  the  total  value  of  the  prop- 
erty which  will  correspond  to  the  extent  of  its  employment  in 
that  business.  It  is  said  that  this  is  extremely  difficult ;  in  par- 
ticular, because  of  the  necessity  for  making  a  division  between 


701)  IJAU.W.W    I'Kor.l.KMS 

tlu'  [tassi'iij^iT  iuul  trci^lil  busiiu-ss,  ami  tlu'  ()l)vions  lack  ol"  cor- 
rospoiuleiR'u  between  tou-iuiles  and  passenger-miles.  It  does  not 
appear,  however,  that  these  are  the  only  nnits  available  for  such 
a  ilivision ;  and  it  would  seem  that,  after  assignuig  to  the  pas- 
senger and  freight  departments,  respectively,  the  property  exclu- 
sively used  in  each,  comparable  use-units  might  be  found  which 
would  afford  the  basis  for  a  reasonable  division  with  respect  to 
property  used  in  common.  It  is  suggested  that  other  methods  of 
calculation  would  be  equally  unfavorable  to  the  state  rates,  but 
this  we  cannot  assume. 

It  is  sufficient  to  say  that  the  method  here  adopted  is  not  of 
a  character  to  justify  the  court  in  basing  upon  it  a  finding  that 
the  rates  are  confiscatory. 

Appoi'tionment  of  expenses.  As  already  stated,  it  was  held  in 
dividing  the  freight  operating  expenses,  that  the  cost  of  doing 
the  intrastate  freight  business  was  two  and  one-half  times  that 
of  doing  the  interstate  freight  business.  That  is  to  say,  the  divi- 
sion of  expenses  was  made  according  to  ton-miles,  interstate  and 
intrastate,  after  the  intrastate  ton-miles  had  been  increased  two 
and  one-haK  times. 

The  substantial  question  is  whether  the  proof  established  this 
extra  cost  with  that  degree  of  certainty  which  is  requisite  to 
support  a  decree  invalidatmg  the  state  rates. 

It  appeared  that  the  cost  of  intrastate  business  was  not  kept 
separately  or  set  up  m  the  accounts  or  statistics  of  the  company. 

The  president  of  the  company  testified  as  to  his  judgment  in 
the  matter,  which  was  based,  in  the  absence  of  such  accounts, 
upon  tlie  general  facts  of  operation.  His  testimony  was  supported 
by  that  of  other  eminent  railroad  men,  who  testified  in  the  Great 
Northern  and  Minneapolis  and  St.  Louis  cases.  The  elements 
entering  into  the  greater  expense  of  doing  intrastate  business 
were  defined  to  be :  that  the  average  haul  was  shorter,  being 
(m  the  case  of  the  Northern  Pacific)  104.52  miles  for  intrastate 
transportation  as  against  485.3  miles  for  interstate  transportation  ; 
that  the  state  business  had  to  be  handled  twice  at  terminals  ;  that 
tlie  local  short-haul  business  used  most  valuable  terminal  facilities 
in  order  to  obtain  its  proper  handling  from  the  larger  distributing 


THE  MINNESOTA   RATE  CASE  707 

centers,  and  used  those  facilities  to  a  greater  extent  for  tlie  tons 
handled  than  did  the  longer  through  busmess ;  that  the  amount 
of  clerical  and  warehouse  labor  in  connection  with  the  local  busi- 
ness was  much  greater  than  in  the  case  of  the  long-haul  through 
business ;  that  the  chances  of  damage  were  greater  in  the  short- 
haul  business  because  of  the  greater  number  of  individual  trans- 
actions ;  that  in  the  short-haul  business  there  was  an  excess  of 
equipment  for  loading  and  unloading ;  that  local  or  way  freight 
trains  were  "  loaded  lighter  "  ;  that  the  wear  and  tear  on  the  local 
trains  was  greater  because  of  frequent  stopping  and  starting ; 
that  there  was  increased  switching,  resulting  in  greater  damage  to 
equipment  and  tracks ;  that  the  local  train  was  generally  on  the 
road  more  hours  than  a  through  train,  and  therefore  consumed 
more  coal ;  that  in  the  smaller  stations  the  amount  of  shifting  was 
large ;  that  many  of  the  local  trains  carried  passengers,  involving 
two  stops  at  each  station,  one  for  passengers  and  the  other  for 
the  local  freight  work ;  that  the  manner  of  operation  of  local 
trains  mcreased  the  chances  of  injury  to  employees  ;  that  the  short- 
haul  business  moved  irregularly  and  spasmodically,  and  that  its 
facilities  were  worked  at  their  full  capacity  only  for  limited  periods. 

From  these  considerations,  wliich  were  elaborated  m  the  testi- 
mony, the  witness  reached  the  conclusion  that  the  "  so-called  local 
short-haul  intrastate  busmess  costs  anywhere  from  three  to  six 
or  seven  times  as  much  as  the  so-called  long-haul  tlu'ough  inter- 
state busmess."  In  the  Great  Northern  Case,  the  witnesses  ex- 
pressed the  opinion  that  the  extra  cost  of  mtrastate  freight  was 
three  or  four  times  greater  than  that  of  the  interstate  freight. 
One  witness  said  that  it  would  be  from  four  to  six  tmies.  These 
estimates,  it  is  understood,  had  relation  to  the  cost  per  ton  mile. 

The  appellants  do  not  dispute  that  business  carried  for  short 
distances  on  local  trains  is  more  expensive  than  the  handling  of 
other  business,  but  it  is  insisted  that  this  is  due  solely  to  the 
different  train  service  that  it  receives.  It  is  said  that  all  through 
trains  start  from  divisional  points  and  run  from  one  end  of  the 
division  to  the  other  without  stop ;  that  the  local  trains  are  made 
up  of  cars  carrying  business  destmed  for  points  intermediate  the 
termini  of  the  division,  and  take  up  all  traffic  origmating  at  the 


7()S  KA1I.\^A^■  iMv(»1!Li<:ms 

inltMiiu'diali'  stations  :  tliat  tlic  word  '•'•  local,"  us  applied  to  these 
trains,  is  not  synonymous  with  intrastate,  hut  that  the  h)(;al  trains 
carry  a  hu'Lje  part  of  the  interstate  tral'lie,  botli  in  receiving  and 
distril lining-  it  :  and  that  hy  far  the  greater  part  of  the  extra 
cost  of  the  local  train  service  is  properly  chargeable  to  interstate 
business.  It  is  also  insisted  that  so  far  as  this  extra  expense  can 
be  charged  to  interstate  business,  it  is  ade(}uately  met  by  the 
atlditional  revenue  of  that  business,  Avliieh  per  ton  mile,  as  com- 
pared Avith  the  hiterstatc;  business,  is  as  1.4387  to  1.0000. 

To  establish  tln'se  propositions,  and  to  meet  the  testimony  of 
the  complainants'  Avitnesses,  the  appellants  introduced  an  elabo- 
rate series  of  calculations,  made  by  a  professional  accountant, 
whicli  \yere  deduced  from  the  results  of  an  extended  examhia- 
tion  of  the  records  of  the  companies.  The  witness  made  compu- 
tations as  to  the  character  of  the  freight  on  each  road,  dividing 
it  between  through  and  local  freight  upon  each  operating  divi- 
sion, and  then  subdividing  it  betAveen  intrastate  and  interstate 
freight.  It  is  contended  by  the  appellants  that  these  calculations 
are  sufficient  to  show  that  in  the  case  of  the  Northern  Pacific, 
about  91  per  cent  of  the  freight  on  through  traijis  was  interstate 
and  about  9  per  cent  mtrastate,  and  that  on  the  local  trains  the 
interstate  freight  amounted  to  G8.67  per  cent,  and  the  uitrastate, 
31.33  per  cent.  Calculations  of  this  witness  were  also  introduced, 
showmg  his  division  of  the  total  expenses  between  the  passenger 
and  freight  busmess,  and  then  in  each  department  between  the 
interstate  and  intrastate  business  ;  and  by  means  of  these,  it  was 
estimated  that,  under  the  rates  in  question  (assuming  them  to 
have  been  applied  to  the  business  of  the  fiscal  year  ending  June 
30,  1907,  to  whicli  the  calculations  were  directed),  the  net  profits 
on  the  intrastate  business  as  a  whole  would  have  been  slightly 
more  than  6  per  cent  upon  an  amount  equal  to  the  share  of  prop- 
erty value  attributed  to  that  business  by  the  master's  estimate 
and  apportionment  of  total  value. 

These  computations  are  assailed  by  the  appellees  as  maccurate 
and  as  based  upon  erroneous  estimates.  We  shall  not  go  into 
the  details,  and,  for  the  present  purpose,  we  may  assume  that 
the  appellees  are  right  in  their  criticism. 


THE  MIKKESOTA  RATE  CASE  709 

Our  conclusions  may  be  briefly  stated.  The  statements  of  the 
complainants'  witnesses  as  to  the  extra  cost  of  interstate  business, 
while  entitled  to  respect  as  expressions  of  opinion,  manifestly 
involve  wide  and  difficult  generalizations.  They  embrace,  with- 
out the  aid  of  statistical  information  derived  from  appropriate 
tests  and  submitted  to  careful  analysis,  a  general  estmiate  of  all 
the  conditions  of  transportation,  and  an  effort  to  express  in  the 
terms  of  a  definite  relation,  or  ratio,  what  clearly  could  be  accu- 
rately arrived  at  only  by  prolonged  and  mmute  investigation  of 
particular  facts  with  respect  to  the  actual  traffic  as  it  was  being 
carried  over  the  line.  The  extra  cost,  as  estimated  by  these  wit- 
nesses, is  predicated  not  simply  of  haulage  charges,  but  of  all 
the  outlays  of  the  freight  service,  mcluding  the  share  of  the  ex- 
penses for  maintenance  of  way  and  equipment  assigned  to  the 
freight  department.  And  the  ratio,  to  be  accurately  stated,  must 
also  express  the  results  of  a  suitable  discrimination  between  the 
interstate  and  intrastate  traffic  on  through  and  local  trams  re- 
spectively, and  of  an  attribution  of  the  proper  share  of  the  extra 
cost  of  local  tram  service  to  the  interstate  traffic  that  uses  it. 
The  wide  range  of  the  estimates  of  extra  cost,  from  three  to  six 
or  seven  times  that  of  the  interstate  business  per  ton  mile,  shows 
both  the  difficulty  and  the  lack  of  certainty  m  passmg  judgment. 

We  are  of  opinion  that,  on  an  issue  of  tliis  character,  involv- 
ing the  constitutional  validity  of  state  action,  general  estimates 
of  the  sort  here  submitted,  with  respect  to  a  subject  so  intri- 
cate and  important,  sliould  not  be  accepted  as  adequate  proof 
to  sustain  a  finding  of  confiscation.  While  accounts  have  not 
been  kept  so  as  to  show  the  relative  cost  of  mterstate  and  mtra- 
state  busmess,  giving  particulars  of  the  traffic  handled  on  through 
and  local  trains,  and  presentmg  data  from  which  such  extra  cost 
as  there  may  be,  of  uitrastate  business,  may  be  suitably  deter- 
mined, it  would  appear  to  have  been  not  impracticable  to  have 
had  such  accounts  kept  or  statistics  prepared,  at  least  during  test 
periods,  properly  selected.  It  may  be  said  that  this  would  have 
been  a  very  difficult  matter,  but  the  company,  having  assailed 
the  constitutionality  of  the  state  acts  and  orders,  was  bound  to 
establish  its  case,  and  it  was  not  entitled  to  rest  on  expressions 


710  KA1L\VA\    PROBLEMS 

of  jiulunu'iit  wl u'u  il  luul  it  in  its  power  to  present  accurate  data 
w  lii(  li  won  111  permit  the  court  to  draw  the  right  conclusion. 

We  need  not  separately  review  the  findings  with  respect  to 
tlu'  di\  ision  of  passenger  expenses,  as  the  same  considerations 
are  involved,  with  the  distinction,  however,  that  the  extra  cost 
attributed  to  the  intrastate  business  is  relatively  small  as  com- 
pared with  that  charged  to  intrastate  freight.  And,  in  view  of 
the  conclusions  reached  on  the  controlling  questions  we  have 
considered,  we  express  no  opinion  Avith  respect  to  the  method 
adopted  m  dividuig  expenses  between  the  passenger  and  freight 
departments. 

For  the  piu'pose  of  determining  whether  tlie  rates  permit  a 
fair  return,  the  results  of  the  entire  intrastate  business  must  be 
taken  into  account.  During  the  test  year  the  entire  revenue, 
as  found,  from  the  hitrastate  business,  passenger  and  freight, 
amounted  to  .$2,897,912.26.  All  the  rates  in  question  were  in 
force  save  the  commodity  rates,  and  it  is  further  found  that  the 
loss  that  would  have  accrued  in  intrastate  commodity  business, 
by  the  application  of  the  conmiodity  rates  which  were  under 
injunction,  would  have  amounted  to  $21,493.67. 

As  neither  the  share  of  the  expenses  properly  attributable  to 
the  intrastate  business,  nor  the  value  of  the  property  employed  in 
it,  was  satisfactorily  sho\vn,  and  hence  it  did  not  appear  upon  the 
facts  proved  that  a  fair  return  had  been  denied  to  the  company, 
we  are  of  the  opmion  that  the  complainant  failed  to  sustain  his  bill. 

2.  G-reat  Northern  Railway  Company.  The  master  found  that 
at  the  time  this  suit  was  brought  the  par  value  of  the  stock  of 
the  company  was  $149,577,500,  and  of  bonds,  $83,119,939; 
total,  $232,697,439.  On  June  30,  1908,  the  par  value  of  the 
stock  was  $209,962,750,  and  of  bonds,  $97,955,939.39;  total, 
$307,918,689.39.  The  property  upon  which  these  securities  and 
their  value  in  the  market  are  based  includes,  it  is  fomid,  a  very 
considerable  amount  not  devoted  to  the  public  service. 

The  balance  sheet  of  the  company  of  June  30,  1908,  showed 
the  book  valuation  of  the  entire  system  employed  in  the  public 
service  to  amount  to  $319,681,815.  The  master  held  that  various 
items  were  included  which  were  not  properly  allowable  as  a  part 


THE  MINNESOTA  RATE  CASE  711 

of  the  cost,  and  deductuig  these,  there  remamed  as  the  book- 
showmg  of  the  total  amount  expended  in  construction  and  equip- 
ment, $295,401,213.  The  Minnesota  track  mileage  was  found 
to  be  practically  32.59  per  cent  of  the  total  mileage,  and  upon 
this  basis,  the  amount  assignable  to  the  state  of  the  total  cost,  as 
stated,  amounted  to  $96,271,255. 

The  master  found  that  the  cost  of  reproduction  new  of  the 
entire  system  was  $457,1 21,469.^  The  value  of  the  portion  of 
the  system  in  Mmnesota  was  separately  found,  on  the  basis  of 
reproduction  new,  to  be  $138,425,291.  The  net  profits  of  the 
company  durmg  the  test  year  from  its  Minnesota  business,  mter- 
state  and  intrastate,  were  $8,180,025.11,  equal  to  5.909  per  cent 
upon  this  estimated  value. 

The  items  entering  mto  the  estimate  are  the  same  m  character 
as  those  set  forth  in  the  estimate  of  the  value  of  the  property  of 
the  Northern  Pacific  Company. ^ 

Included  in  this  reproduction  cost  was  an  allowance,  for  "  lands 
for  right  of  way,  yards,  and  termmals,"  of  $25,172,650.80,  as 
follows : 

St.  Paul,  appraisement  of  Read,  Watson,  and  Taylor  ....  .f  6,433,348.00 
Add  5  per  cent  for  cost  of  acquisition  and  consequential  damages  .  321,067.40 
Minneapolis,  appraisement  of  Elwood,  Barney,  and  Ridgeway  .  11,619,76.5.00 
Add  5  per  cent  for  cost  of  acquisition  and  consequential  damages  .  630,968.15 
Duluth,  appraisement  of  Stryker,  Mendenhall,  and  Little  .  .  713,280.00 
Add  25  per  cent  for  railroad  value,  cost  of  ac(iuisition,  and  con- 
sequential damages 178,320.00 

Total  value  of  terminals 19,847,366.55 

Lands  outside  of  terminals 5,325,284.25 

Grand  total 25,172,650.80 

The  appraisements  thus  referred  to,  adopted  by  the  master 
with  the  additions  stated,  were  made  by  the  appraisers  in  the 
tlu"ee  cities  who  were  employed  in  the  case  of  the  Northern 
Pacific  company.  The  valuations  were  made  at  the  same  time, 
and  upon  the  same  basis,  as  the  corresponding  valuations  in  that 
case,  and  are  open  to  the  same  objections.  In  the  company's  esti- 
mate of  the  value  of  the  lands  outside  these  cities,  the  amount 

1  This  did  not  include  the  interest  of  the  company  in  the  Spokane,  Portland, 
&  Seattle  Railroad,  or  lines  under  construction.  2  g^g  p_  Qgi 


ill!  KAII.WAV    TK'OI'.LKMS 

stated  as  tlic  niarkt't  valiu'  was  largely  iiu'i'cascd  to  obtain  tlic 
"right  of  way  value"  :  with  ri'spcct  to  lands  in  agricultural  sec- 
tions, tlie  "market  value""  was  generally  nuiltiplied  by  3;  and 
of  the  total  amount  of  the  estimate  of  the  company  the  master 
allowed  75  per  cent,  as  in  the  Northern  Pacific  Case. 

In  addition,  4^  per  cent  of  the  aggregate  land  values,  as 
found,  was  allowed  in  the  item  for  "engineering,  superintend- 
ence, legal  expenses,"  and  the  further  allowance  of  16  per  cent 
of  these  land  values  was  made  in  the  item  of  "interest  during 
construction  "  (4  per  cent  for  four  years). 

In  the  physical  valuation  estimated  on  the  basis  of  the  cost  of 
reproduction  ne%v,  the  master  made  no  deduction  for  depreciation, 
while,  on  the  other  hand,  there  was  included  under  the  item 
of  graduig  the  sum  of  $3,219,642  for  adaptation  and  solidifica- 
tion of  roadbed.  The  engineer  of  the  state  commission  estimated 
the  depreciation  in  the  property  at  approximately  .$13,000,000. 

What  has  already  been  said  m  the  case  of  the  Northern  Pacific 
Company  with  respect  to  estimates  of  value,  the  apportionment 
of  value,  the  testimony  as  to  the  extra  cost  of  doing  the  intra- 
state busmess,  and  the  division  of  expenses  between  interstate 
and  mtrastate  business,  is  equally  applicable  here.^  In  these 
respects  there  is  no  material  distinction  between  the  two  cases, 
and  the  'same  conclusion  must  be  reached  in  both. 

3.  3Iin7ieapoUs  ^  jSL  Loids  Railroad  Company.  This  case  pre- 
sents distinct  considerations.  The  Imes  of  this  company  consist 
of  about  1028  miles  of  track,  of  which  396  miles  are  operated 
under  lease  or  trackage  rights.  Of  its  owned  mileage  (632  miles) 
approximately  60  per  cent  is  in  the  state  of  Mmnesota.  The 
master  tluis  describes  it : 

It  runs  south  from  the  inland  cities  of  St.  Paul  and  Minneapolis  to  Des 
Moines,  with  a  branch  to  Storm  Lake,  Iowa,  and  a  branch  to  the  South 
Dakota  grain  fields.    Along  its  entire  line  it  comes  in  sharp  competition 

1  The  total  revenue  received  by  the  Great  Northern  during  the  fiscal  year 
1008,  from  its  intrastate  business,  passenger  and  freight,  was  $4,641,829.58  ;  and 
it  was  found  that  the  loss  that  would  have  been  sustained  by  the  application  of 
the  enjoined  commodity  rates  to  the  intrastate  commodity  traffic  would  have 
amounted  to  §87,261.43. 


THE  MINNESOTA  RATE  CASE  713 

with  strong  intersecting  railroad  lines,  and  while,  as  before  stated,  it  sub- 
serves a  useful  public  purpose  and  is  operated  in  response  to  public  de- 
mand, it  can  be  maintained  only  by  the  exercise  of  the  highest  economy 
and  watchfulness  in  its  operation,  and  to  succeed  must  be  given  greater 
latitude  than  is  necessary  with  respect  to  the  more  favorably  located  and 
prosperous  lines  of  railway. 

The  less  favorable  situation  of  the  road  is  fully  recognized  by 
the  appellants,  who  object  to  its  bemg  regarded  as  affordmg  a 
fair  test  of  the  sufficiency  of  the  rates.  They  say  that  its  "  total 
mileage  and  the  geograpliical  location  "  are  such  "  that  it  cannot 
be  taken  as  typical  of  the  railway  situation  in  JNIinnesota  "  ;  and 
they  msist  that  "  the  important  and  material  questions  are  raised 
by  the  showing  made  in  the  Northern  Pacific  and  Great  Northern 
Cases."  And  the  ap})ellees,  on  their  part,  assert  that  "  it  cannot 
l)e  seriously  contended  that  the  rates  complained  of  are  sufficient 
to  yield  any  reasonable  return  on  a  proportionate  value  of  the 
property  used  in  the  conduct  of  the  business  covered  by  the 
rates "  ;  that  the  net  income  of  the  road  "  from  all  sources  is 
scarcely  sufficient  to  pay  interest  on  its  outstanding  bonds "  ; 
that  "  the  value  of  the  property  is  greatly  in  excess  of  the  par 
value  of  the  bonds "  ;  and  that,  as  it  seems  to  the  appellees, 
"  this  company  must  earn  more  money  or  go  into  the  hands  of  a 
receiver,  within  a  comparatively  short  time." 

The  main  facts  are:  The  par  value  in  1908,  of  its  stock  and 
bonds,  was  $30,011,800,  divided  as  follows:  stock,  $10,000,000 
(preferred,  $4,000,000,  common  .$6,000,000) ;  bonds  $20,011,800. 
It  appeared  that  no  dividends  had  been  paid  on  the  common 
stock  smce  1904.  The  aimual  interest  charges  amounted  to 
$952,583. 

The  book  cost  of  its  property,  after  deducting  items  disal- 
lowed by  the  master,  was  $28,574,225 ;  and  this,  if  divided 
according  to  mileage,  would  give  to  Minnesota  as  its  share, 
$17,127,390.  The  mileage  basis  of  division,  however,  fails  to 
take  account  of  the  fact  that  the  property  in  Minnesota  has  a 
greater  relative  value. 

The  master  found  the  total  value  of  the  property  in  Minnesota 
on  the  basis  of  the  cost  of  reproduction  new  to  be  $21,608,464. 


714  KAii.WAV  ruor.LEMS 

In  this  ostimato  tlunv  was  included  the  sum  of  $5,990,397.00 
I'or  lands,  yards,  and  terminals.  Oi'  tins  amount  $4,550, 298  was 
allowi'd  t'oi'  the  lands  in  Minneapolis  on  the  estimate  of  the  same 
a})praisers  who  luul  been  employed  in  that  city  by  tla^  other 
companies;  and  to  this  the  master  added  5  per  cent.  The  lands 
outside  these  terminals  were  valued  at  $1,215,285. 

The  net  eannngs  of  the  entire  system  after  paying  only  oper- 
ating expenses  and  taxes,  from  1903  to  1909,  were  found  to 
be  as  follows:  1903,  $1,398,895.30  ;  1904,  $1,229,524.49  ;  1905, 
$1,277,870.91);  100(),  $1,511,901.99;  1907,  $1,419,822.54  ;  1908, 
$1,220,802.21;  1909,  $1,280,494.08. 

The  net  earning  of  the  company  on  all  its  business  in  Minne- 
sota, interstate  and  intrastate  (involving  any  use  oi  the  property 
valued  as  stated),  after  paying  only  operating  expenses  and 
taxes,  were,  during  the  same  period:  1903,  $1,222,941.77; 
1904,  .$1,052,478.74;  1905,  $1,054,853.35  ;  1900,  $1,109,200.50  ; 
1907,  $895,977.00  ;  1908,  $742,377.40  ;  1909,  $794,472.58.  The 
reference  in  each  case  is  to  the  fiscal  year  ending  on  June  30. 

It  thus  appears  that  the  net  return  from  the  entire  Minnesota 
busmess  m  1907  was  about  4.14  per  cent  on  the  estimated  value 
of  the  property  ($21,008,404)  in  Minnesota ;  m  1908,  less  than 
3.5  per  cent;  and  in  1909,  less  than  3.7  per  cent. 

The  master  made  his  computations,  with  respect  to  the  return 
permitted  under  the  rates  in  question,  upon  the  operations  of  the 
fiscal  year  ending  June  30,  1907.  The  class  rates  had  been  ef- 
fective from  November  15, 1900,  and  the  passenger  fare  act  from 
May  1,  1907.  It  was  estimated  by  the  master  that  the  additional 
loss,  which  would  have  accrued  in  the  mterstate  business  if  these 
rates  had  been  in  force  during  the  entire  fiscal  year  ending 
June  30, 1907,  and  if,  in  addition,  the  commodity  rate  act,  which 
was  enjoined,  had  been  appUed  to  the  intrastate  traffic  of  that 
year,  would  have  amounted  to  $131,358,  thus  making  a  very 
serious  reduction  in  a  return  already  inadequate ;  and  his  con- 
clusion was  that  the  rates  in  question  were  plamly  confiscatory. 

It  is  not  necessary  here  to  reproduce  the  computations,  as  we 
are  satisfied,  after  a  careful  examination  of  the  evidence,  that 
while  the  methods  of  estimating  value,  and  of  apportionment, 


THE  MINNESOTA  RATE  CASE  715 

which  have  been  disapproved  in  the  discussion  of  the  cases  of 
the  other  companies,  are  subject  to  the  same  objections  in  this 
case,  so  far  as  they  have  been  employed,  the  margin  of  error 
which  may  be  imputed  to  them  is  not  sufficient^  great  to  change 
the  result.  The  net  return  from  the  entire  business  in  Minnesota, 
interstate  and  intrastate,  fell  to  $742,000  in  the  fiscal  year  end- 
ing June  30,  1908,  and  it  is  plain  that  the  latter  amount  would 
have  been  largely  reduced  had  the  commodity  rate  act  been 
enforced.  In  view  of  the  actual  results  of  the  business  in  the 
state,  and  the  clearly  established  facts  with  respect  to  the  con- 
ditions of  traffic  upon  this  road,  the  conclusion  cannot  be  escaped 
that  the  rates  prescribed  by  the  acts  and  orders  of  INIinnesota 
would  not  permit  a  fair  return  to  this  company. 

Without  approving,  therefore,  the  methods  of  calculation  which 
have  been  adopted,  but  recognizing  the  peculiar  situation  of  this 
road,  and  the  undouljted  effect  of  the  rates  m  question  upon  its 
revenues,  we  are  of  the  opinion  that  the  decree,  so  far  as  it  rests 
upon  the  confiscatory  character  of  the  rates  as  applied  to  this 
company,  should  be  affirmed.  In  the  desire,  however,  to  prevent 
the  possibility  that  the  decree  may  operate  injuriously  in  the 
future,  we  shall  modify  it  by  providmg  that  the  members  of 
the  Railroad  &  Warehouse  Commission,  and  the  attorney  gen- 
eral of  the  state,  may  apply  at  any  time  to  the  court,  by  bill  or 
otherwise,  as  they  may  be  advised,  for  a  further  order  or  decree, 
whenever  it  shall  appear  that,  by  reason  of  a  change  in  circum- 
stances, the  rates  fixed  by  the  State's  acts  and  orders  are  suf- 
ficient to  yield  to  the  company  reasonable  compensation  for  the 
services  rendered. 

The  decrees  in  Numbers  291  and  292  are  reversed  and  the 
cases  remanded  with  duections  to  dismiss  the  bills  respectively 
without  prejudice. 

The  decree  in  Number  293  is  modified  as  stated  in  the  opin- 
ion, and,  as  modified,  is  affirmed. 

Mr.  Justice  McKenxa  concurs  in  the  result. 


XXVI 

THE    REGULATION    OF    RAILWAY    RATES    UNDER 
THE   FOURTEENTH   AMENDMENT i 


111  1873  the  Supreme  Court  of  llic  United  States,  in  the  first 
decision  ^  that  involved  the  construction  of  the  Fourteenth 
Aniendment,  limited  its  application  in  a  way  that  must  have 
surprised  both  those  who  had  advocated  and  those  who  had 
opposed  its  adoption  on  the  floor  of  Congress.  The  court  held 
that  the  privileges  and  immunities  of  citizens  of  the  United  States 
protected  by  the  amendment  were  not  the  general  privileges  and 
immunities  of  citizens,  but  only  those  special  privileges  and  im- 
munities that  belonged  to  citizens  of  the  United  States  as  such, 
—  the  right  to  come  to  the  seat  of  government,  to  assert  claims 
against  the  national  government,  to  transact  business  with  it,  to 
seek  its  protection,  to  share  its  offices,  to  have  free  access  to  its 
seaports,  subtreasuries,  land  offices,  and  the  courts  of  justice  of 
the  several  states,  to  demand  its  care  and  protection  over  life, 
liberty,  and  property  when  on  the  high  seas  or  in  the  jurisdiction 
of  a  foreign  government,  to  assemble  and  petition  for  redress  of 
grievances,  and  to  have  the  writ  of  habeas  corpus ;  to  use  the 
navigable  waters  of  the  United  States,  and  to  enjoy  all  rights 
secured  by  treaty  with  foreign  nations,  to  change  citizenship  from 

1  From  the  Quarterly  Journal  of  Economics,  1912,  pp.  380-424. 

2  Slaughter  House  Cases,  16  Wallace,  36. 

It  may  not  be  amiss  to  quote  the  language  of  that  part  of  the  first  section 
of  the  Fourteenth  Amendment  which  is  here  under  consideration  : 

No  state  shall  make  or  enforce  any  law  which  shall  abridge  the  privileges  or 
immunities  of  citizens  of  the  United  States  ;  nor  shall  any  state  deprive  any  person 
of  life,  liberty,  or  property  without  due  process  of  law ;  nor  deny  to  any  person  within 
its  jurisdiction  the  equal  protection  of  the  laws. 

The  reader  need  hardly  be  reminded  that  this  Amendment  was  made  after 
the  Civil  War,  being  ratified  in  1868. 

716 


CONSTITUTIONAL  RATE  REASONABLENESS      717 

one  state  to  another  with  the  same  rights  as  other  citizens  of  that 
state.  Important  as  these  rights  are,  they  are  not  the  ordinary 
everyday  rights  that  closely  affect  the  citizen.  For  these  he  was 
left  to  the  protection  of  the  states.  Though  the  actual  decision 
related  only  to  one  clause  of  the  amendment,  the  opinion  of 
]\Ir.  Justice  Miller,  who  spoke  for  the  court,  intimated  strongly 
that  the  clause  forbidding  the  states  to  deprive  any  person  of 
life,  liberty,  and  property  without  due  process  of  law,  and  to 
deny  to  any  person  within  its  jurisdiction  the  e(|ual  protection 
of  the  laws,  was  intended  to  protect  against  unjust  discrimination 
the  negro  race  only. 

Three  years  later,  however,  in  the  Granger  cases  ^  (1876)  it 
was  taken  for  granted  that  the  scope  of  the  latter  clause  of  the 
amendment  was  broader,  and  that  it  protected  not  merely  those 
of  the  negro  race,  but  all  persons.  The  court  in  fact  followed 
the  dissenting  opinions  of  Justices  Field  and  Bradley,  not  the 
dictum  of  the  prevailing  opinion  of  Justice  JMiller. 

The  Granger  cases  settled  the  authority  of  the  state  legisla- 
tures to  control  the  charges  of  a  business  affected  with  a  public 
interest.  Some  of  the  language  used  by  the  court  went  far  in 
denying  any  right  of  the  court  to  interfere.  It  was  said  distinctly 
that  though  the  power  conceded  to  the  legislature  was  liable  to 
be  abused,  the  people  nmst  resort  for  protection  against  abuses 
to  the  polls  and  not  to  the  courts.  It  was  conceded  that  under 
some  cii'cumstances,  but  not  under  all,  statutory  regulations 
might  deprive  the  owner  of  his  property  without  due  process  of 
law ;  but  it  was  held  that  the  amendment  did  not  change  the 
law;  "it  simply  prevents  the  States  from  doing  that  which  will 
operate  as  such  a  deprivation." 

The  question  of  rates  seemed  by  these  decisions  determined 
to  be  a  legislative,  not  a  judicial  question.  Six  years  later  ^  the 
court  held  that  a  railroad  company  whose  board  of  directors  was 
by  the  charter  authorized  to  establish  rates  could  not  as  against 

1  Munn  V.  Illinois,  !)4  U.  S.  113  (1877).  Chicago,  B.  &  Q.  R.B.  Co.  v.  Iowa, 
94  U.  S.  155.  Peik  v.  Chicago  and  N.W.  Railway  Co.,  Lawrence  v.  Same,  94 
U.  S.  164.  Chicago,  M.  &  St.  C.  R.R.  Co.  v.  Ackley,  94  U.  S.  179.  Winona  & 
St.  Peter  R.R.  Co.  v.  Blake,  94  U.  S.  180.    Stone  v.  Wisconsin,  94  U.  S.  181. 

2  Ruggles  v.  Illinois,  108  U.  S.  526  (1883). 


7IS  UAILWAV    I'KOl'.LEMS 

a  gonoral  law  of  the  state  exact  more  than  three  cents  per  mile 
piM-  passenger.  The  reasoning  was  put  on  a  narrow  basis,  involv- 
ing only  the  construction  of  tlu'  charter.  The  power  granted 
was  to  determine  the  rates  by  by-laws ;  the  power  to  pass  by- 
laws was  limited  to  such  as  were  not  re[)ugnant  to  the  laws  of 
the  state,  and  hence  it  was  held  that  the  by-laws  could  not  iix 
a  greatt'r  rate  than  was  permitted  by  tlu;  general  legislation  ; 
"grants  of  innnunity  from  legitimate  control,"  said  the  Cliief 
Justice,  "  are  never  to  be  presumed." 

The  states  soon  began  to  avail  themselves  of  the  power  to 
control  business  affected  with  a  public  uiterest.  The  first  impor- 
tant case  concerning  the  limitation  of  their  powers  arose  in  Cal- 
ifornia.^ It  decided  that  the  rates  of  a  water  company  might  be 
fixed  by  a  county  lK)ard  in  which  the  water  company  was  not 
represented,  although  the  charter  of  the  company  provided  for 
its  representation.  The  court  expressly  reserved  the  question 
what  might  be  done  in  case  tlie  municipal  authorities  did  not 
exercise  an  honest  judgment  or  fixed  a  price  manifestly  unrea- 
sonable. Two  years  later,^  it  was  decided  that  railroad  charges 
might  be  fixed  by  a  Railroad  Commission,  although  charters 
provided  that  the  companies  themselves  might  fix  the  tolls  and 
charges.  The  legislature  of  Mississippi,  by  legislation  subsequent 
to  the  charters,  created  a  Railroad  Commission  with  power  to 
revise  rates  and  increase  or  reduce  them  as  experience  and  busi- 
ness operation  might  show  to  be  just.  It  was  argued  that  the 
legislature  by  the  provision  in  the  charters  had  surrendered  the 
power  of  control  over  fares  and  freights.  It  was  conceded  that 
the  rates  must  by  the  rule  of  the  common  law  be  reasonable, 
and  the  court  held  that  the  state  was  left  free  to  act  on  the  sub- 
ject of  reasonableness  within  the  limits  of  its  general  authority 
as  circumstances  might  require.  "  The  right  to  fix  reasonable 
charges  has  been  granted,"  said  Chief  Justice  Waite,  "but  the 
power  of  declarmg  what  shall  be  deemed  reasonable  has  not 
been  surrendered.  If  there  had  been  an  mtention  of  surrender- 
ing this  power,  it  would  have  been  easy  to  say  so ;  not  having 

1  Spring  Valley  Water  Works  v.  Schottler,  110  U.  S.  347  (1884). 

2  l{ailruad  Cuuimissiou  Cases,  116  U.  S.  307  (1880). 


CONSTITUTIONAL  RATE  EEAS0NABLENES8      719 

said  so,  the  conclusive  presumption  is  there  was  no  such  inten- 
tion." The  court,  however,  was  careful  to  guard  agamst  an  in- 
ference that  the  power  of  regulation  was  without  limit.  "  The 
power  to  regulate,"  it  was  said,  "  is  not  a  power  to  destroy,  and 
limitation  is  not  the  equivalent  of  confiscation.  Under  pretense 
of  regulating  fares  and  freights,  the  State  cannot  require  a  rail- 
road corporation  to  carry  persons  or  property  without  reward ; 
neither  can  it  do  that  which  in  law  amounts  to  a  taking  of 
private  property  for  public  use  without  just  compensation,  or 
without  due  process  of  law." 

The  statute  was  held  not  to  be  m  conflict  with  the  due  process 
clause  and  the  equal  protection  clause  of  the  Fourteenth  Amend- 
ment. "  General  statutes  fixing  maximum  rates,"  it  was  said, 
"  do  not  necessarily  deprive  the  railroad  company  of  its  property 
contrary  to  the  amendment."  The  importance  of  the  qualifying 
word  "  necessarily "  appeared  m  subsequent  decisions  when  it 
was  held  that  such  statutes  might  sometimes  be  void.  The  de- 
cisions thus  far  were  in  favor  of  public  control,  and  agamst 
review  by  the  courts. 

II 

Four  years  later,  in  the  Minnesota  Rate  Cases, ^  the  court  took 
a  position  hard  to  reconcile  with  what  was  said  in  Mimn  v.  Illi- 
nois and  the  succeeding  cases.  The  Minnesota  Commission  had 
ordered  a  reduction  of  rates  for  transportation  of  milk  from 
three  cents  to  two  and  a  half  cents  a  gallon ;  and  for  switching 
cars  from  $1.25  and  il.50  per  car  to  il.OO  per  car.  The  railroads 
resisted  and,  upon  application  to  the  state  courts,  a  mandamus 
was  issued  to  put  in  force  the  rates  fixed  by  the  commission. 
The  Supreme  Court  reversed  this  action.  Justice  Blatchford 
rested  the  reversal  upon  the  fact  that  the  decision  of  the  railroad 
commission  was  made  a  finality  under  Minnesota  law ;  he  said 
that  the  commission  could  not  be  regarded  as  clothed  with  judi- 
cial functions  or  possessing  the  machinery  of  a  court  of  justice. 
"The  question  of  the  reasonableness  of  a  rate  of  charge  for 

1  Chicago,  M.  &  St.  P.  Railway  Co.  v.  Minnesota,  134  U.  S.  418  (1890). 
Minneapolis  Eastern  Railway  Co.  v.  Minnesota,  134  U.  S.  467  (1890). 


7l2(»  KAILWAN     I'KOl'.LKMS 

tvansportation  by  a  railroad  coiniiany,  involviiii^  as  it  dops  the 
oli'iiu'iit  t>f  n-asonabli'iu'ss  both  as  re^'ards  thi'  company  and  as 
regards  the  public,  is  ciuiiuMitly  a  (picstion  for  judicial  investiga- 
tion, rei|niring  due  process  of  law  lor  its  dcterniiuation.  If  the 
company  is  dcpriviMl  of  tlu^  ])o\vcr  of  chai'ging  reasonable^  rates 
for  llu'  usi'  of  ils  pro[)city,  and  such  deprivation  takes  place  in 
the  absence  of  an  investigation  by  judicial  machinery,  it  is  de- 
prived of  the  lawful  nse  of  its  property  and  thus  in  substance 
and  effect,  of  the  }-)roperty  itself,  without  due  process  of  hiw  and 
in  violation  of  the  law  of  the  Constitution  of  the  United  States  ; 
and  in  so  far  as  it  is  thus  deprived,  while  other  persons  are  per- 
mitted to  receive  reasonable  profits  upon  their  invested  capital, 
the  company  is  deprived  of  the  equal  protection  of  the  laws." 

The  court  seemed  by  this  language  to  decide  that  the  ques- 
tion of  rates  was  always  a  judicial  question,  and  not,  as  had  been 
held  before  and  has  been  held  since,  a  legislative  question  ;  that 
it  could  therefore  be  settled  by  a  judicial  tribunal  only ;  that  if 
a  railroad  company  was  not  allowed  to  charge  reasonable  rates, 
its  constitutional  rights  were  violated ;  and  that  it  was  entitled 
to  reasonable  profits  in  the  same  sense  as  other  persons  not  en- 
gaged in  a  public  calling.  It  is  difficult  to  see  how  the  right  to 
profit  as  mdividuals  not  engaged  in  a  public  calling  can  be  con- 
sistent with  the  right  of  the  state  to  regulate  the  rates  of  those 
engaged  in  such  a  calling.  The  opinion,  carried  to  its  logical 
conclusion,  would  substitute  the  courts  for  the  commission  as 
final  arbiter ;  and  in  effect  would  throw  the  whole  burden  of 
rate  making  upon  the  judicial  machinery.  No  wonder  the  opinion 
did  not  command  the  unanimous  voice  of  the  court.  Justice 
Miller  concurred  m  the  result,  but  upon  the  ground  that  the 
commission  had  applied  to  the  courts  to  enforce  their  order ; 
that  in  substance  this  was  asking  the  courts  to  determine  that 
the  order  was  reasonable,  and  hence  the  court  had  the  right  and 
duty  to  inquire  into  the  reasonableness  of  the  tariff  of  rates. 

Justice  Bradley,  speaking  for  himself  and  Justices  Gray  and 
Lamar,  dissented.  He  pointed  out  that  the  decision  practically 
overruled  Munn  v.  Illinois  and  the  railroad  cases  decided  with 
it ;  that  the  question  of  the  reasonableness  of  a  charge,  so  far 


CONSTITUTIONAL  RATE  REASONABLENESS      721 

from  being  a  judicial  question,  was  preeminently  a  legislative 
one  involving  considerations  of  policy  as  well  as  of  remunera- 
tion ;  that  in  practice  it  had  usually  been  determined  by  the 
legislature  by  fixmg  a  maximum  in  the  charter  of  the  company 
or  afterwards  if  there  were  no  binding  contract ;  that  the  ques- 
tion only  became  judicial  when  the  legislature  enacted  simply 
that  rates  should  be  reasonable,  thus  necessarily  submitting  the 
question  what  was  in  fact  reasonable  to  the  judicial  tribunals ; 
but  that  the  legislature  might  itself  or  by  its  commission  fix  the 
rates ;  and  that  for  that  purpose  their  decision  was  final,  unless 
they  so  acted  as  to  deprive  pai'ties  of  their  property  without  due 
process  of  law ;  but  that  a  mere  difference  of  judgment  as  to 
amount  between  the  commission  and  the  companies  without  any 
indication  of  intent  on  the  part  of  the  commission  to  do  injus- 
tice, did  not  amount  to  a  deprivation  of  property.  The  real  dif- 
ference between  Justice  Blatchford  and  Justice  Bradley  was  as  to 
the  question  presented  in  a  rate  case.  According  to  the  former 
it  was :  "  is  the  rate  a  reasonable  one,  and  such  as  would  afford 
the  same  profit  as  could  be  realized  by  one  not  subject  to  regu- 
lation ?  "  According  to  the  latter  it  was :  "is  the  rate  so  unrea- 
sonable as  to  be  arbitrary  and  amount  to  confiscation  of  property 
rather  than  mere  regulation  of  a  rate  ?  "  The  difference  is  strik- 
ing and  fundamental.  If  the  legislature  had  the  right  to  regulate 
rates,  as  had  been  settled  in  the  (Iranger  cases,  then  the  property 
of  the  railroads  was  qualified  by  that  public  right,  and  there 
could  be  no  deprivation  of  such  qualified  property  as  long  as  the 
legislature  confined  itself  to  fair  regulation  and  did  not  under- 
take to  confiscate  under  the  guise  of  regulation.  The  view  of 
the  minority  has  finally  prevailed.^ 

Justice  Bradley  in  the  course  of  his  opmion  took  occasion  to 
speak  of  the  relations  between  the  courts  and  the  legislature. 
His  words  are  worth  quoting: 

It  is  always  a  delicate  thing  for  the  courts  to  make  an  issue  with  the 
legislative  department  of  the  government,  and  they  should  never  do  so  if  it 
is  possible  to  avoid  it.  By  the  decision  now  made  we  declare,  in  effect,  that 
the  judiciary,  and  not  the  legislature  is  the  final  arliiter  in  the  regulation 

1  Atlantic  Coast  Line  v.  No.  Car.  Corp.  Coinm.,  206  U.  S.  1  (1907). 


7'J-J  HAll.W  .\^■    TKOl'.LKMS 

of  I'ari's  and  froiglits  of  railroads  aiul  tlic  i'1uu\l;cs  of  otlior  jniblic  acconi 
nioilations.  It  is  an  assumiitioii  of  aiitlioritv  on  llic  part  of  tlic  judicdary, 
which,  it  seonis  to  nn',  with  all  due  dcfi-rcnct!  to  (hr  judgnu'nt  of  my  hrctlircn, 
it  has  no  right  to  make. 

Tlio  doeision  of  the  Court  in  the  Mhiiiesota  Rate  cases,  it  was 
fmllier  pointed  out,  gave  a  new  extension  to  the  meaning  of  the 
words  "due  process  of  law.*'  Justice  Blatehford's  language  must 
mean  that  due  process  of  law  ro(piires  judicial  procedure  "with 
the  forms  and  machinery,"  lo  (piote  his  language,  "provided 
by  the  wisdom  of  successive  ages  for  the  investigation  judicially 
of  the  truth  of  a  matter  in  controversy."  Long  before  this  deci- 
sion the  court  had  held  in  an  elaborate  opinion  by  ]\Ir.  Justice 
Curtis  ^  that  the  same  words  in  the  Fifth  Amendment  did  not 
necessarily  imply  a  regular  proceeding  in  a  court  of  justice  or 
after  the  manner  of  such  courts  ;  and  this  view  had  been  adopted 
and  applied  in  the  construction  of  the  Fourteenth  Amendment. 
The  ditliculty  of  ]\Ir.  Justice  Blatehford's  view  becomes  apparent 
if  it  is  applied  to  the  taking  of  the  property  of  the  citizen  by 
taxation,  by  assessments  for  public  improvements,  or  by  admin- 
istrative measures  under  the  police  power ;  or  to  restraint  of  the 
person  made  necessary  by  our  immigration  laws.  "  In  judging 
what  is  due  process  of  law,"  said  Mr.  Justice  Bradley,  "respect 
must  be  had  to  the  cause  and  object  of  the  taking,  whether  under 
the  taxing  power,  the  power  of  eminent  domain,  or  the  power  of 
assessment  for  local  improvements,  or  none  of  these  :  and  if  found 
to  be  suitable  or  admissible  in  the  special  case,  it  will  be  adjudged 
to  be  due  process  of  law  ;  but  if  found  to  be  arbitrary,  oppressive 
and  unjust,  it  may  be  declared  to  be  not  '  due  process  of  law.' " 

The  decision  in  the  IMinnesota  Rate  case  inevitably  led  to 
repeated  efforts  to  secure  review  by  the  courts  of  rates  fixed  by 
statute  or  the  orders  of  public  commissions. 

After  an  unsuccessful  effort  by  a  friendly  litigation  to  have  a 
particular  rate  declared  unreason able,^  the  question  next  arose 
in   the  great  case  of  Meagan  v.   Farmer^  Loan   cf    Trii%t   Go.^ 

1  Murray''s  Lessee  v.  Hohoken  Land  and  Improvement  Co.,  18  How.  272  (1856). 

2  Chicago  &  Grand  Trunk  RuilvMy  Co.  v.  Wellman,  143  U.  S.  339  (1892). 
8  154  U.  S.  302  (1894). 


CONSTITUTIONAL  RATE  REASONABLENESS      723 

noteworthy  because  it  was  the  first  successful  effort  to  enjoin 
the  enforcement  of  rates  fixed  by  a  commission. 

The  question  was  squarely  raised,  for  the  defendant  denied 
the  power  of  the  court  to  entertain  the  inquiry  at  all,  and  in- 
sisted that  the  fixing  of  rates  for  carriage  by  a  public  carrier 
was  a  matter  wholly  within  the  power  of  the  legislative  depart- 
ment of  the  government  and  beyond  examination  by  the  courts. 
To  this  the  court  through  INIr.  Justice  Brewer  answered : 

The  province  of  the  courts  is  not  changed,  nor  the  limit  of  judicial  in- 
quiry altered,  because  the  legislature  instead  of  the  carrier  prescribes  the 
rates.  The  courts  are  not  authorized  to  revise  or  change  the  body  of  rates 
imposed  by  a  legislature  or  a  commission ;  they  do  not  determine  whether 
one  rate  is  preferable  to  another,  or  what  under  all  circumstances  would 
be  fair  and  reasonable  as  between  the  carriers  and  the  shippers ;  they  do 
not  engage  in  any  mere  administrative  work ;  but  still  there  can  be  no 
doubt  of  their  power  and  duty  to  inquire  whether  a  body  of  rates  pre- 
scribed by  a  legislature  or  a  commission  is  unjust  and  unreasonable,  and 
such  as  to  work  a  practical  destruction  to  rights  of  property,  and  if  found 
so  to  be,  to  restrain  its  operation. 

The  complainants  challenged  the  tariff  as  a  whole  and  the 
court's  inquiry  was  limited  to  its  effect  as  a  whole.  The  facts 
were  thus  stated  by  the  court : 

The  cost  of  this  railroad  property  was  <|40, 000,000  ;  it  cannot  be  replaced 
to-day  for  less  than  $25,000,000.  There  are  !i!l5,000,000  of  mortgage  bonds 
outstanding  against  it,  and  nearly  $510,000,000  of  stock.  These  bonds  and 
stock  represent  money  invested  in  the  construction  of  this  road.  The 
owners  of  the  stock  have  never  received  a  dollar's  worth  of  dividends  in 
return  for  their  investment.  The  road  was  thrown  into  the  hands  of  a 
receiver  for  default  in  payment  of  the  interest  on  the  bonds.  The  earnings 
for  the  last  three  years  prior  to  the  establishment  of  these  rates  were  in- 
sufficient to  pay  the  operating  expenses  and  the  interest  on  the  bonds.  In 
order  to  make  good  the  deficiency  in  interest  the  stockholders  have  put 
their  hands  in  their-  jiockets  and  advanced  over  a  million  of  dollars.  The 
suppli(!s  for  the  road  have  been  purchased  at  as  cheap  a  rate  as  possible. 
The  officers  and  employees  have  been  jaaid  no  more  than  is  necessary  to 
secure  men  of  the  skill  and  knowledge  requisite  to  suitable  operation  of 
the  road.  .  .  .  The  actual  reduction  by  virtue  of  this  tariff  in  the  receipts 
during  the  six  or  eight  months  that  it  has  been  enforced  amounts  to  over 
$150,000. 


7*Jt  KAILW.W     rUOl'.I.KMS 

rpoii  these  filets  the  Court  said: 

A  gcnt'ral  aviTiucnl  in  a  l>ill  tliat  a  tariff  as  established  is  unjust  and 
unreasonalilt',  is  supperted  l>y  tlic  adiiiitted  facts  tliat  tlie  road  cost  far 
more  thau  the  amount  of  the  stock  and  bonds  outstanding;  that  such 
stock  and  bonds  represent  money  invested  in  its  construction  ;  that  there 
has  been  no  \vast«>  or  niisnKina<'enu'ut  in  tlie  construction  or  operation ; 
that  supplies  and  labor  have  been  purchased  at  the  lowest  possible  price 
consistent  with  the  successful  operation  of  the  road ;  that  the  rates  volun- 
tarily fixed  by  the  company  have  been  for  ten  years  steadily  deci'easing 
until  the  aggregate  decrease  has  been  more  than  fifty  per  cent ;  that  under 
the  rates  thus  voluntarily  established,  the  stock,  which  represents  two-fifths 
of  the  value,  has  never  received  anything  in  the  way  of  dividcTuls,  and  that 
for  the  last  three  years  the  earnings  above  operating  expenses  have  been 
insufficient  to  pay  the  interest  on  the  bonded  debt,  and  that  the  proposed 
tariff,  as  enforced,  will  so  diminish  the  earnings  that  they  will  not  be  able 
to  pay  one-half  the  interest  on  the  bonded  debt  above  the  operating  ex- 
penses ;  and  that  such  an  averment  so  supported,  will,  in  the  absence  of 
any  satisfactory  showing  to  the  contrary,  sustain  a  finding  that  the  pro- 
posed tariff  is  unjust  and  unreasonable,  and  a  decree  reversing  it  being 
put  in  force. 

In  (lecidmg  whether  a  tariff  is  so  unreasonable  and  unjust  as 
practically  to  destroy  the  value  of  tlie  carrier's  property,  it  is  of 
course  essential  to  fix  the  standard  or  principle  upon  which  that 
value  is  to  be  determined.  Upon  this  question  the  Reagan  case 
is  indecisive.  Some  of  the  language  suggests  that  cost  of  the 
property  is  the  proper  measure  of  its  value ;  other  language, 
cost  of  replacement ;  and  still  other  language,  present  value. 
The  question  was  left  for  discussion  in  the  later  cases. 

The  Reagan  case  had  dealt  with  the  effect  of  the  tariff  of 
rates  as  a  whole.  Similar  questions  arose  in  St.  Louis  and  San 
Francisco  Railicay  v.  Gill,^  where  it  was  decided  that  the  correct 
test  was  the  effect  of  the  rates  on  the  whole  line  of  the  carrier's 
road,  and  not  the  effect  upon  that  portion  which  was  formerly  a 
part  of  one  of  the  consolidating  roads  ;  that  a  company  cannot 
claim  the  right  to  earn  a  net  profit  for  every  mile  of  road,  nor 
attack  as  unjust  a  regulation  which  fixes  a  rate  at  which  some 
part  would  be  unremunerative ;  that  the  earnings  of  the  entire 
line  must  be  estimated  as  against  all  its  legitimate  expenses 

1  156  U.  S.  049  (1895). 


CONSTITUTIONAL  KATE  KEASONABLENESS      725 

under  the  operation  of  the  act  withhi  the  Ihuits  of  the  state. 
The  last  qualification  presents  a  new  difticulty,  —  that  of  sever- 
ing a  railroad  into  parts  divided  by  the  imaginary  state  lines. 
The  later  effort  to  segregate  intrastate  and  interstate  business 
has  led  to  difficult  problems  still  in  process  of  solution.  The 
Gill  case  was  a  suit  for  a  penalty,  and  the  court  in  referring  to 
Justice  Miller's  statement  in  the  Minnesota  Rate  cases  that  the 
rates  were  bindmg  until  judicially  determined  to  be  void,  added 
that  in  cases  where  the  legislature  itself  fixed  the  rates,  a  bill  in 
equity  was  impracticable  because  there  was  no  public  functionary 
or  commission  which  could  be  made  to  respond,  and  the  com- 
panies, if  they  were  to  have  any  relief,  must  have  the  right  to 
raise  the  question  by  way  of  defense  to  an  action  for  penalties. 
This  remark  was  unnecessary  to  the  decision,  since  the  result  of 
the  case  on  the  facts  was  against  the  carrier.  The  remedy  by 
injunction  to  restrain  legal  officers  of  the  state  from  prosecuting, 
came  later. 

The  same  principle  that  applies  to  the  case  of  a  carrier,  applies 
also  to  a  turnpike  company.  In  Covington,  etc.,  Turnpike  Com- 
pany V.  Sandford,^  the  Court  held  that  the  facts  that  the  tolls  for 
several  years  prior  to  1890  had  not  admitted  of  dividends  greater 
than  4  per  cent  on  the  par  value  of  the  stock  ;  that  the  proposed 
reduction  would  so  diminish  the  income  of  the  company  that  it 
could  not  maintain  its  road,  meet  its  ordinary  expenses,  and  earn 
any  dividends  whatever  for  stockholders,  showed  that  the  con- 
stitutional rights  of  the  turnpike  company  were  violated.  Jus- 
tice Harlan  was  careful  to  say  that  a  mere  failure  of  the  rates 
to  suffice  to  earn  four  per  cent  on  the  stock  would  not  justify 
holding  the  rates  to  be  void.  "  It  cannot  be  said,"  he  added, 
"that  a  corporation  is  entitled,  as  of  right,  and  without  reference 
to  the  interests  of  the  public,  to  realize  a  given  per  cent  upon 
its  capital  stock.  .  .  .  The  public  cannot  properly  be  subjected 
to  unreasonable  rates  in  order  simply  that  stockholders  may  earn 
dividends."  In  dealing  with  the  question  how  the  reasonable- 
ness of  rates  was  to  be  ascertained,  the  court  was  not  very  satis- 
factory. The  inquuy  was  said  to  involve  a  consideration  of  the 
1  164  U.  S.  578  (1896). 


720  1;A1L^VA^■  I'Kor.LE.MS 

rii;lit  of  the  jmblic  to  use  the  road  on  i):iyin<jf  reasonable  tolls, 
and  also  ol"  the  ri'asonahU'  cost  of  niainlainiii*;'  the  road  in  good 
condition  foi-  [luhlic  use,  and  the  amount  that  may  have  been 
really  and  necessarily  invested  in  the  enterprise.  It  was  held 
that  there  niig-ht  be  other  eireumstances,  not  then  necessary  to 
state:  that  eaeli  case  must  depend  upon  its  special  facts;  and 
justice  might  recjuire  different  rates  for  dii^'erent  roads.  In  short, 
the  opinion  merely  holds  that  rates  must  l)e  reasonable  and  fair 
both  to  the  public  and  the  company  and  nuist  not  be  so  low. as 
practically  to  deprive  the  company  of  its  property.  No  standard 
was  fixed,  and  tlie  case  decided  only  that  the  particular  rates 
infringed  the  constitutional  provision.  The  language  of  the  court 
indicates  that  it  is  the  actual  and  necessary  investment  of  the 
company  that  is  to  be  considered.  This  seems  to  mean  the 
actual  necessary  cost  as  distinguished  from  cost  of  replacement 
or  present  value. 

The  results  reached  up  to  this  point  may  be  thus  summarized. 
State  enactments  or  regulations  establishing  rates  that  will  not 
permit  of  the  carrier  earning  such  compensation  as  under  all  the 
circumstances  is  just  to  it  and  the  public,  infringe  the  provisions 
of  the  Fourteenth  Amendment ;  and  the  question  whether  rates 
are  so  unreasonably  low  as  to  deprive  the  carrier  of  its  property 
cainiot  be  conclusively  determined  by  the  legislative  authority 
of  the  state,  but  may  be  the  subject  of  judicial  inquiry. 

Ill 

These  general  principles  do  not  go  far  to  solve  the  question 
in  a  particular  case.  The  decision  in  the  Nebraska  JMaximum 
Rate  cases  ^  took  a  further  step.  It  was  contended  on  behalf  of 
the  state  that  the  compensation  to  be  allowed  the  carrier  after 
payment  of  operating  expenses  was  purely  a  question  of  public 
policy  to  be  determined  by  the  legislature  and  not  by  the  courts. 
"It  cannot  be  successfully  contended,"  said  counsel  for  the  state, 
"  that  so  long  as  the  rate  fixed  pays  something  above  operating 
expenses   to   the   corporation    for   the   carryhig   of   property,   it 

1  Smyth  V  Ames.    Smyth  v.  Smith.    Smyth  v.  Higf/inson,  169  U.  S.  460  (1898). 


CONSTITUTIONAL  RATE  REASONABLENESS      727 

amounts  to  the  taking  either  of  the  use  or  of  the  property." 
"  It  must  follow  then,  that,  so  long  as  the  rate  fixed  by  the  law 
will  pay  the  operating  expenses  when  economically  administered, 
and  something  m  addition  thereto,  the  power  of  the  court  ends, 
and  the  extent  to  which  rates  must  produce  profits  is  one  of 
political  policy."  In  short,  the  contention  was  that  the  right  of 
property  in  a  railroad  consisted  in  the  title  and  possession  and 
the  privilege  to  operate  it  economically,  with  the  right  to  such 
additional  compensation,  however  small,  as  the  legislature  chose 
to  allow  from  time  to  time.  The  successful  maintenance  of  this 
proposition  would  plainly  have  ended  the  control  of  the  courts 
over  the  subject.  It  went  to  the  very  root  of  the  matter.  It 
might  logically  be  contended  that  a  property  right  that  was  sub- 
ject to  legislative  regulation,  as  settled  by  the  Granger  cases, 
was  not  taken  away  when  the  legislature  did  in  fact  regulate ; 
but  it  was  nevertheless  true  that  the  power  to  regulate  was  not 
a  power  to  destroy.  The  case  involved  really  a  definition  of  the 
word  "  property  "  as  applied  to  a  common  carrier ;  and  in  view 
of  the  earlier  decisions,  the  Court  very  naturally  answered  the 
contention  of  counsel  by  saying : 

The  idea  that  any  legislature,  State  or  Federal,  can  conclusively  deter- 
mine for  the  people  and  for  the  courts  that  what  it  enacts  in  the  form  of 
law,  or  what  it  authorizes  its  agents  to  do,  is  consistent  with  the  funda- 
mental law,  is  in  opposition  to  the  theory  of  our  institutions.  The  duty 
rests  upon  all  courts,  Federal  and  State,  when  their  jurisdiction  is  jtroperly 
invoked,  to  see  to  it  that  no  right  secured  by  the  supreme  law  of  the  land 
is  impaired  or  destroyed  by  legislation.  This  function  and  duty  of  the 
judiciary  distinguishes  the  Amei'ican  system  from  all  other  systems  of 
government.  The  perpetuity  of  our  institutions  and  the  liberty  which  is 
enjoyed  under  them  depend,  in  no  small  degree,  upon  the  power  given  the 
judiciary  to  declare  null  and  void  all  legislation  that  is  clearly  repugnant 
to  the  supreme  law  of  the  land. 

The  definition  of  "  property "  becomes,  therefore,  in  the  last 
resort  a  matter  for  the  courts. 

The  Nebraska  case  involved  also  the  question  of  rates  within 
a  state  over  railroads  extending  through  other  states.  It  was 
said  that  rates  reasonable  in  Iowa  might  be  unreasonable  in 
Nebraska  since  the  density  of  population,  and  hence  of  traffic. 


7-JS  KAII.W.n'    TKOl'.LKMS 

nunlit  !)(.'  uTi'.ittM'  in  the  t'oniu'r,  wliilc  the  cost  of  construction 
and  niaintcnani'c  niiylit  l)e  less.  It.  was  lielil  that  the  reasonable- 
ness of  rates  on  iraflic  wliollv  within  the  state  must  be  deter- 
niined  without  reference  to  the  interstate  business  done  by  the 
carrier  or  to  the  [)ro(its  derived  from  it. 

Tlu'  argunuMit  that  a  railroad  line  is  an  entirety;  that  its  income  goes 
into,  and  its  expenses  are  provided  for  out  of  a  common  fund,  and  that  its 
capitalization  is  on  its  entire  line,  within  and  without  the  state,  can  have 
no  application  whei-e  the  State  is  without  authority  over  rates  on  the  entire 
line,  and  can  only  deal  with  local  rates  and  make  such  regulations  as  are 
necessary  to  give  just  compensation  on  local  business. 

Whether  the  attempt  thus  made  to  sever  the  intrastate  from  the 
interstate  business  can  be  carried  out  successfully  is  a  question 
involved  in  later  litigation  and  not  yet  settled.  It  involves  a  de- 
termination of  the  proportion  of  value  of  plant  and  cost  of  traffic 
to  be  attributed  to  the  lines  within  the  state.  In  view  of  the  inter- 
action of  the  various  elements  of  cost  and  of  revenue  within  and 
without  the  state  upon  each  other,  the  problem  is  most  difficult, 
and  may  prove  possible  of  solution  only  by  an  approximation. 

The  Court  in  the  Nebraska  case  considered  also  the  question 
on  what  amount  the  railroads  were  entitled  to  earn  a  revenue. 
The  companies  contended  that  they  were  entitled  to  such  rates 
as  would  enable  them  at  all  times,  not  only  to  pay  operating 
expenses,  but  also  to  meet  the  interest  regularly  accruing  upon 
all  outstanding  obligations  and  to  justify  a  dividend  on  all  their 
stock;  less  than  that,  it  was  said,  w^ould  deprive  them  of  prop- 
erty  without  due  process  of  law.  The  Court  held,  however,  that 
this  contention  practically  excluded  from  consideration  the  fair 
value  of  the  property  used,  omitted  the  right  of  the  public  to  be 
exempt  from  unreasonable  exactions,  would  justify  the  railroad 
in  trying  to  earn  interest  on  bonds  in  excess  of  its  fair  value  and 
dividends  on  fictitious  capitalization.  The  court  was  still  indefi- 
nite in  laying  down  the  basis  of  the  valuation  on  which  earnings 
might  fairly  be  had.  It  said  the  rights  of  the  public  would  be 
ignored  if  rates  were  exacted  without  reference  to  the  fair  value 
of  the  property  used  for  the  public  or  the  fair  value  of  the  serv- 
ices rendered.    But  these  two  bases  of  calculation  are  far  from 


CONSTITUTIOXAL  EATE  REASOXABLEXESS      729 

leading  to  the  same  result.  To  base  rates  upon  the  value  of  the 
property,  involves  the  value  of  the  plant  in  its  entirety  and  the 
net  result  of  all  the  rates  on  thousands  of  items.  To  base  them 
upon  the  value  of  the  services  rendered,  involves  a  consideration 
only  of  particular  items  and  may  involve  a  consideration  of  the 
value  of  the  services  to  the  shipper.  The  two  methods  are  in- 
commensurate. What  the  court  decided  was  that  the  basis  of 
all  calculations  as  to  the  reasonableness  of  rates  must  be  the  fair 
value  of  the  property  used ;  that  in  order  to  ascertain  that  value, 
the  original  cost  of  construction,  the  amount  expended  in  perma- 
nent improvements,  the  amount  and  market  value  of  the  bonds 
and  stock,  the  present  as  compared  with  the  original  cost  of  con- 
struction, the  probable  earning  capacity  of  the  property  under 
the  particular  rates  prescribed,  and  the  sum  required  to  meet 
operating  expenses,  are  all  matters  for  consideration,  to  be  given 
such  weight  as  may  be  just  and  right  in  each  case.  Justice  Harlan 
was  careful  to  add :  "  We  do  not  say  that  there  may  not  be  other 
matters  to  be  regarded  in  estimating  the  value  of  the  property." 

Many  of  these  elements  required  and  have  received  and  are 
destined  to  receive  further  definition  and  analysis.  What  other 
elements  are  to  be  considered  may  never  be  finally  settled,  so 
infinitely  various  are  the  circumstances  that  distinguish  each 
case  as  it  arises. 

The  Court  soon  had  occasion  to  apply  the  rule,  and  the  opin- 
ion shows  no  greater  certainty  in  the  basis  of  valuation. ^  A  water 
company  insisted  that  the  court  should  consider  the  cost  of  the 
plant,  the  annual  cost  of  operation  including  interest  on  money 
borrowed  and  reasonably  necessary  to  be  used  in  constructing 
the  same ;  the  annual  depreciation  of  the  plant  from  natural 
causes  resulting  from  its  use ;  and  a  fair  profit  to  tlie  company 
either  by  way  of  interest  on  the  money  expended  for  the  public 
use,  or  upon  some  other  fair  and  equitable  basis.  All  these 
matters  the  court  conceded  ouglit  to  be  taken  mto  consideration, 
but  it  held  that  the  basis  of  calculation  was  defective  in  not  re- 
quiring the  real  value  of  the  property  and  the  fair  value  in  them- 
selves of  the  services  rendered  to  be  taken  into  consideration. 
1  San  Biecjo  Land  Co.  v.  Natiunal  City,  174  U.  S.  739  (1899). 


7oO  KAll.W.W     I'UOl'.IJvMS 

Tlu'  (ipinion,  however,  j)oiuts  to  no  more  (letiiiitc  rule.  "What 
the  eompany  is  entitled  to  demand,"  says  the  Court,  "in  order 
that  it  may  iiave  just  compt'nsation,  is  a  lair  return  upon  the 
reasonable  value  of  the  [>roperty  at  the  time  it  is  being  used 
tor  the  publie."  This  aUopts  present  value  as  the  standard,  but 
leaves  unsettled  how  the  reasonable  value  of  the  property  is  to 
be  asi-ertained,  and  what  is  a  fair  return. 

The  opuiion  in  the  next  case  ^  sought  to  make  a  distinction 
between  public  service  companies  and  companies  which  without 
any  intent  of  public  service  have  placed  their  property  in  such  a 
position  that  the  public  has  an  interest  in  its  use.  As  to  the  first 
class,  Justice  Brewer  said  the  owner  intentionally  devoted  his 
property  to  the  discharge  of  a  public  service,  and  undertook  that 
which  is  a  proper  work  for  the  state,  and  might  be  said  to  accept 
voluntarily  all  the  conditions  of  public  service  which  attach  to 
like  service  performed  by  the  state  itself.  As  to  the  second  class 
the  owner  placed  his  property  in  such  a  position  willingly  or 
unwillmgly,  that  the  public  acquire  an  interest  in  its  use,  but  he 
submits  only  to  those  necessary  interferences  and  regulations 
which  the  public  interests  require.  Of  the  former  it  was  said  that 
since  the  state  was  not  guided  solely  by  a  question  of  profit  but 
might  conduct  the  business  at  a  loss  having  in  view  a  larger 
general  interest,  so  perhaps  an  individual  who  had  shown  his 
willingess  to  undertake  the  work  of  the  state  might  be  held  to 
perform  that  service  without  profit.  The  suggestion  was  put  in 
the  form  of  an  interrogation,  since  it  was  confessedly  unnecessary 
in  the  pending  case  to  deternnne  the  question.  It  seems  to  con- 
flict with  Smyth  v.  Ames,  and  the  Court  has  never  yet  decided 
that  the  legal  right  of  regulation  goes  to  this  extent.  The  decided 
case  involves  a  corporation  of  the  other  class,  which  was  not 
doing  the  work  of  the  state,  was  not  performing  a  public  ser- 
vice, and  had  acquired  from  the  state  none  of  its  governmental 
powers.  The  business  was  that  of  a  stock  yard  at  Kansas  City. 
The  business  was  held  to  be  so  affected  with  a  public  interest, 
being  at  the  gateway  of  a  great  commerce  of  which  it  was  an 
important  if  not  a  necessary  adjunct,  that  its  charges  like  those 
1  Cottimj  V.  Kansas  City  Stock  Yards  Co.,  183  U.  S.  79  (1901). 


CONSTITUTIONAL  KATE  REASONABLENESS      731 

of  a  grain  elevator  were  subject  to  public  regulation.  But  the 
Court  said  the 

business  in  all  matters  of  purchase  and  sale  is  subject  to  the  ordinary  con- 
ditions of  the  market  and  the  freedom  of  contract.  He  (the  owner)  can 
force  no  one  to  sell  to  him,  he  cannot  prescribe  the  price  which  he  shall 
pay.  ...  If  under  such  circumstances  he  is  bound  by  all  the  conditions  of 
ordinary  mercantile  transactions,  he  may  justly  claim  some  of  the  privileges 
which  attach  to  those  engaged  in  such  transactions.  And  while  he  cannot 
claim  immunity  from  all  state  regulation,  he  may  rightfully  say  that  such 
regulation  shall  not  operate  to  deprive  him  of  the  ordinary  privileges  of 
others  engaged  in  mercantile  business. 

The  difference  in  practical  result  suggested  in  the  opinion  is  that 
in  the  case  of  a  business  affected  with  a  public  interest  although 
not  devoted  to  the  public  service,  the  state's  regulation  of  charges 
is  not  to  be  measured  by  the  aggregate  of  profits  determined  by 
the  volume  of  business,  but  by  the  question  whether  any  partic- 
ular charge  to  an  individual  dealing  with  him  is,  considering  the 
service  rendered,  an  unreasonable  exaction. 

The  question  is  not  how  much  he  makes  out  of  his  volume  of  business,  but 
whether  in  each  particular  transaction  the  charge  is  an  unreasonable  exac- 
tion for  the  services  rendered.  He  has  a  right  to  do  business.  He  has  a 
right  to  charge  for  each  separate  service  that  which  is  reasonable  compen- 
sation therefor,  and  the  legislature  may  not  deny  him  such  reasonable 
compensation,  and  may  not  interfere  simply  because  out  of  the  multitude 
of  his  transactions  the  amount  of  his  profits  is  large.  Such  was  the  rule  of 
the  common  law  even  in  resj^ect  to  those  engaged  in  a  quasi  public  service 
independent  of  legislative  action.  In  any  action  to  recover  for  an  excessive 
charge,  prior  to  all  legislative  action,  who  ever  knew  of  an  inquiry  as  to  the 
aniouut  of  the  total  profits  of  the  party  making  the  charge  ? 

The  distinction  suggested  by  Justice  Brewer  and  his  expres- 
sions with  reference  to  the  subject  are  interesting  and  suggestive  ; 
but  the  opinion  was  not  the  opinion  of  the  court.  Six  out  of 
nine  judges  assented  to  the  judgment  upon  the  ground  that  the 
Kansas  statute  violated  the  Fourteenth  Amendment  because  it 
applied  only  to  one  stock-yards  company,  and  not  to  other  cor- 
porations engaged  in  like  business  in  Kansas,  and  therefore 
denied  to  that  company  tlie  equal  protection  of  the  laws.  They 
were  careful  to  say  that  they  expressed  no  opinion  upon  the 


(juost  1(^11  Avhotlu'r  it  deprived  tlic  eoinpany  of  its  property  with- 
out due  process  of  law.  This,  and  not  rlustiee  Brewer's  ehihorate 
opinion,  t'xpresses  the  \  icw  of  llie  court.  I'n(K'r  the  facts  of  tlu; 
case  it  amounted  to  sayini;-  that  the  answer  was  doubtful  us  to  the 
(piesti(Mi  whether  rates  that  enabled  a  company  to  earn  5.3  })er 
cent  on  the  \alue  of  the  pi'o[)erty  used  for  stock-yards  purposes, 
instead  of  about  10  per  cent  previously  earned,  amounted  to  de- 
[)rivino-  it  of  ])roperty  without  due  process  of  law ;  the  propriety 
of  anv  rate  of  n-tui'ii  was  not  (h'cided. 

The  sug'^'cst ion  that  a  pnblic  service  company,  doing  the  work 
of  the  state,  mio'ht  })roperly  do  it  for  an  unrenninerative  rate 
bore  fruit  in  the  Minnesota  Coal  Rate  casc.^  That  case  is  im- 
portant because  it  sustained  an  nnremtuierative  rate  upon  coal 
fixed  by  the  state  connnission.  The  ruling  is  in  C(intlict  with  the 
reasoning  of  jSni//ffi  v.  Ames  (the  Nebraska  cases)  and  the  court 
recognizes  the  necessity  of  explaining  the  distinction.  It  says 
that  while  the  reasonableness  or  unreasonableness  of  rates  for 
intrastate  trailic  must  be  determined  without  reference  to  the 
interstate  bushiess,  it  does  not  follow  that  the  companies  are 
entitled  to  earn  the  same  percentage  of  profits  on  all  classes  of 
freight  carried.  This  hardly  justifies  the  conclusion  that  the 
carrier  may  be  compelled  to  carry  some  goods  at  a  loss ;  for  if 
so,  the  power  to  select  those  goods  involves  a  power  to  discrimi- 
nate quite  at  variance  with  fundamental  principles ;  if  the  rail- 
road can  be  compelled  to  carry  coal  at  a  loss,  it  may  also  be 
compelled  to  carry  other  goods  at  a  loss ;  and  since  it  is  entitled 
to  a  fair  return  upon  the  whole  business,  this  loss  must  be  made 
up  by  the  imposition  of  a  heavier  rate  on  other  goods  than  would 
naturally  fall  thereon;  the  public  authorities  are  then  permitted 
to  discriminate  against  some  shippers  and  in  favor  of  others,  a 
discrimination  which  has  always  been  condemned,  and  was  held 
to  be  illegal  by  the  New  Jersey  Supreme  Court,^  upon  the 
ground  that  carriers  were  engaged  in  a  public  employment, 
three  years  before  the  United  States  Supreme  Court  decided 
the  Granger  cases. 

1  Minneapolis  &  St.  Louis  R\l  Co.  v.  Minnesota,  186  U.  S.  257  (11)02). 

2  Messenger  v.  Pennsylvania  11. It.  700,  407  (1873). 


CONSTITUTIONAL  RATE  REASONABLENESS      733 

The  court  in  the  Minnesota  Coal  Rate  case  sought  to  justify 
the  losing  rate  upon  the  ground  that  for  purposes  of  ultunate 
profit  and  of  building  up  a  future  trade,  railways  carry  both 
freight  and  passengers  at  a  positive  loss.  No  doubt  such  is  the 
fact,  and  if  railways  were  to  be  left  free  to  fix  rates  according 
to  their  own  pleasure,  and  to  discriminate  at  theii"  pleasure  be- 
tween shippers,  the  practice  of  sowing  seed  to  reap  a  future  crop 
might  be  permissible.  The  difliculty  is  that  considerations  of 
that  kind  are  not  reducible  to  a  legal  rule,  but  involve  consid- 
erations of  business  policy. 

It  is  not  only  diiificult  to  determine  how  much  of  the  value  of 
an  entire  railroad  shall  be  attributed  to  the  portion  within  a 
state,  but  since  even  that  portion  is  used  in  part  for  intrastate 
and  in  part  for  interstate  traffic,  the  value  of  the  property  used 
for  local  and  for  through  traffic  must  also  be  determined ;  and 
since  all  the  business  is  done  by  the  same  men,  with  the  same 
equipment,  the  total  cost  of  conducting  the  business  must  also 
be  apportioned.  As  might  be  expected  from  the  intricacy  of  the 
problem,  the  results  thus  far  reached  are  not  satisfactory.  In 
the  Gill  case  it  was  held  that  every  mile  need  not  pay ;  from 
which  it  would  seem  to  result  that  the  system  must  be  treated 
as  an  entirety,  and  that  losses  on  local  traffic  might  be  balanced 
by  profit  on  tlirough  traffic  or  vice  versa.  Smyth  v.  Ames 
decided  the  contrary,  and  made  necessary  the  determination 
of  the  proper  basis  for  apportionment  of  value  and  cost.  The 
South  Dakota  case  ^  rejected  gross  receipts  as  a  proper  basis 
for  the  apportionment.  The  other  basis  suggested  is  that  of 
the  volume  of  traffic  determined  according  to  ton  mileage.  The 
tendency  of  the  more  recent  cases  in  the  lower  Federal  courts 
seems  to  be  in  the  direction  of  apportioning  cost  and  value 
according  to  gross  receipts.  The  question  is  still  unsettled  in 
the  Supreme  Court.  In  the  Florida  Phosphate  cases,^  the  court 
leaned  to  the  ton-mile  basis,  at  least  as  far  as  concerns  the  cost 
of  doing  the  business. 

1  Chicago,  M.  &  St.  P.  Ry.  v.  Tompkiw,  176  U.  S.  167. 

"^Atlantic  Coast  Line  v.  Florida,  20.3  U.  S.  256  (1906).    Seaboard  Air  Line  v. 
Florida,  203  U.  S.  261  (1906). 


7:)4  KAii.w.w  i*kop.ij:ms 

'riu>  (luostioii  ti>  1)0  decided  wlieii  tlie  proteetioil  of  the  Four- 
teeiiili  Aiiieiidiueiil  is  imoked,  is  wlielluT  llio  rates  as  a  whole 
atVord  a  sulUcient  return,  or  are  so  low  as  to  amount  to  confisca- 
tion. When,  as  in  the  South  Dakota  C-oal  case  or  the  Florida 
Phosphate  cases,  the  rate  upon  a  single  article  only  is  involved, 
it  is  impossible  to  determine  the  effect  -of  that  single  rate  upon 
gross  or  net  returns  on  the  entire  traffic,  and  hence  impossible 
to  prove  that  the  rate  fixed  is  so  low  as  to  amount  to  confisca- 
tion. Such  was  the  result  in  the  Florida  Phosphate  cases,  and 
it  is  quite  conceivable  that  the  court  might  be  forced  to  decide 
that  one  unremunerative  rate  after  another  was  not  in  conflict 
with  the  property  right  of  the  carriei',  until  an  entire  schedule 
of  unremunerative  rates  might  have  been  sustained.  In  the 
Phosphate  cases  the  question  did  not  arise,  since  the  rate  per- 
mitted exceeded  the  average  receipts  per  ton  per  mile  under 
the  previous  tariff.  But  the  possibility  of  the  result  I  have  in- 
dicated illustrates  the  danger  of  the  decision  in  the  Minnesota 
Coal  case,  that  a  carrier  may  be  required  to  carry  a  particular 
commodity  at  an  unrenuinerative  rate. 

IV 

The  reasonable  value  of  the  property  used  was  by  1903  pretty 
well  recognized  as  the  proper  standard  upon  which  returns  may 
be  earned.  In  San  Diego  Land  ^  Town  Co.  v.  Jasper  ^  the  Court 
said :  "  It  no  longer  is  open  to  dispute  that  under  the  Constitu- 
tion what  the  company  is  entitled  to  demand,  in  order  that  it 
may  have  just  compensation,  is  a  fair  return  \\\)0\\  the  reasonable 
value  of  the  property  at  the  time  it  is  beuig  used  for  the  public." 
That  standard  is  adopted  as  against  a  standard  based  on  actual 
cost,  less  depreciation.  Actual  cost,  selling  price,  valuation  for 
taxation,  may  all  be  evidence  of  the  actual  value.  But  actual 
value  may  sometimes  be  enhanced  by  the  fact  that  the  plant  is 
larger  than  is  needed.  Is  the  company  entitled  to  earn  a  reve- 
nue on  an  unnecessary  expenditure  ?  To  this  question,  the  Court 
answers,  no.    Upon  the  value  as  fixed  by  tlie  local  board,  rates 

1 181)  U.  S.  439  (1903). 


CONSTITUTIONAL  RATE  REASONABLENESS      735 

were  fixed  with  the  intention  of  securing  a  yiehl  of  6  per  cent. 
The  court  found  no  sutiticient  evidence  that  this  rate  was  con- 
fiscatory. But  the  local  board  had  fixed  the  rates  as  if  the  water 
company  supplied  the  whole  6000  acres  outside  the  city  for 
which  the  works  were  intended.  In  fact  it  supplied  less,  and  its 
receipts  were  therefore  less  than  the  supervisors  estimated.  The 
result  might  give  the  appellant  less  than  0  per  cent  on  tlie  value 
of  the  plant.  But  the  court  said  that  if  the  plant  was  built  for 
a  larger  area  than  it  could  supply,  the  Constitution  did  not  re- 
quire that  two-thirds  of  the  contemplated  area  should  pay  a  full 
return.  The  case  is  therefore  important  because  it  holds  that  a 
failure  to  pay  six  per  cent  on  present  value  is  not  necessarily 
decisive  of  the  question  whether  rates  are  confiscatory  so  as  to 
violate  the  constitutional  provision.  The  present  value  on  which 
the  company  is  entitled  to  a  return  is  only  the  present  value  of 
what  is  reasonably  necessary  for  the  public  service. 

A  water  company  in  California'^  was  incorporated  under  a 
statute  which  empowered  the  county  board  of  supervisors  to  reg- 
ulate rates,  but  not  to  reduce  them  so  low  as  to  yield  to  stock- 
holders less  than  1^  per  cent  a  month  on  the  capital  actually 
invested.  After  the  company  had  invested  about  a  million  dol- 
lars in  its  plant,  a  new  statute  empowered  the  supervisors  to  so 
adjust  the  rates  as  to  yield  not  less  than  6  nor  more  than  18  per 
cent  per  annum  upon  the  value  of  the  property  actually  used 
and  useful  for  the  supply  of  water.  The  court  held  that  there 
was  no  contract  the  obligation  of  which  was  impaired,  and  that 
even  if  there  was  a  contract,  the  legislature  might  alter  or  amend 
the  original  statute  under  its  reserved  power.  For  our  present 
purpose  the  important  point  decided  is  that  it  is  not  a  confiscation 
nor  a  taking  of  property  without  due  process,  nor  a  denial  of  the 
.equal  protection  of  the  laws,  to  fix  water  rates  so  as  to  give  an 
mcome  of  six  per  cent  upon  the  then  value  of  the  property  actu- 
ally used,  even  though  the  company  had  prior  thereto  been  allowed 
to  fix  rates  that  would  secure  to  it  18  per  cent  upon  the  capital 
actually  invested.    The  right  of  property  of  a  water  company 

1  Stanislans  County  v.  San  Joaquin  and  Kiwfs  River  Canal  and  Irrigation  Co., 
192  U.  S.  201  (1904). 


736  KAII.WAV    PKOI'.LKMS 

iukU'v  tlii>  Califoniia  statute,  so  far  as  it  is  pi'otected  by  the 
Foiutt'enth  .Vuu'iuhnent,  is  no  more  than  a  right  to  earn  G  per 
eent  on  present  value,  regardless  of  actual  investment  or  previous 
statutory  provisions  permitting  a  larger  return. 

The  method  of  determining  present  value  still  remains  to  be 
settled.  To  ascertain  the  value  of  tangible  property,  such  as 
lands  or  buildings,  for  the  purpose  of  determinmg  the  just  com- 
pensation required  to  be  made  when  it  is  taken  for  public  use, 
has  always  been  a  sufficiently  difficult  question.  To  ascertain 
the  value  for  the  purpose  of  determining  whether  a  schedule  of 
rates  is  confiscatory  is  more  difficult  still. 

In  the  Knoxville  Water  Company  case,^  the  value  had  been 
based  on  cost  of  reproduction,  to  which  there  was  added  $10,000 
for  organization  and  promotion  expenses,  and  $60,000  for  value 
as  a  going  concern.  The  court  cleclmed  to  decide  upon  the 
propriety  of  mcluding  these  two  items  in  the  estimate,  and 
expressly  reserved  them  for  consideration  when  the  question 
necessarily  arose.  The  Knoxville  case  turned  upon  the  failure 
of  the  court  below  to  make  a  proper  deduction  for  depreciation 
arising  from  age  and  use.  It  was  held  that  the  water  company 
was  not  entitled  to  value  an  old  plant  as  if  it  were  a  new  one. 
The  more  interesting  question  was  as  to  the  right  of  the  com- 
pany to  add  to  the  present  value  of  its  plant  the  cost  of  what 
had  been  lost  tlirough  destruction  or  obsolescence,  and  what  had 
been  impaired  in  value  although  still  in  use.  There  was  little  dis- 
cussion of  the  question  in  the  opinion,  no  doubt  because  the  cir- 
cumstances of  the  particular  case  did  not  call  for  discussion. 
The  court  held  that  it  was  the  duty  of  the  company  to  use 
enough  of  its  earnings  to  keep  its  plant  good,  before  coming  to 
the  question  of  the  amount  of  its  profits,  and  that  if  it  failed  to 
keep  its  investment  unimpaired,  whether  because  it  declared  un- 
warranted dividends  on  over-issues  of  securities,  or  because  it 
failed  to  exact  proper  prices  for  its  output,  it  could  not  enhance 
the  present  value  of  its  property  by  the  addition  of  the  costs  of 
its  mistakes.  The  question  is  likely  to  arise,  as  it  has  already  in 
some  cases,  in  a  more  difficult  form,  where  fruitless  but  necessary 
^Knoxville  v.  Water  Co.,  212  U.  S.  1  (1909). 


CONSTITUTIOIS^AL  RATE  EEASOXABLENESS       737 

experiments  have  been  made,  or  plant  has  become  obsolete  in 
a  rapidly  advancing  industry  before  it  could  possibly  be  made 
good  out  of  current  earnings.  It  arose  before  the  Interstate 
Commerce  Commission,  in  the  converse  case  where  the  coi-pora- 
tion,  in  order  to  reduce  its  apparent  rate  of  earnings,  sought  to 
charge  against  current  earnings  the  cost  of  betterments  from 
which  it  was  likely  to  profit  for  years  to  come.  The  Supreme 
Court  approved  the  ruling  of  the  Interstate  Commerce  Commis- 
sion and  held  that  the  mstrumentalities  tliat  are  to  be  used  for 
years  should  not  be  paid  for  by  the  revenues  of  a  day  or  year.^ 
A  public  service  company  cannot  use  more  money  in  a  year  than 
is  required  for  actual  depreciation,  and  carry  the  excess  as  an 
addition  to  capital  for  the  purpose  of  estimating  the  amount  on 
which  it  is  entitled  to  dividends,  in  determming  whether  a  rate  is 
confiscatory.^  Novel  questions  of  this  character  will  arise  with 
increasing  frequency,  and  require  the  most  careful  consideration. 
Like  most  other  questions  m  every  department  of  the  law,  they 
are  m  their  origin  rather  questions  of  fact  than  questions  of  law, 
although  in  course  of  time  the  rules  become  settled  and  thus  be- 
come rules  of  law.  In  then-  origin,  and  as  yet,  many  questions 
are  questions  of  sound  business  management  and  engineering 
science.  The  law  prescribes  reasonable  returns  upon  a  reason- 
able valuation.  What  is  a  reasonable  return  and  what  is  a 
reasonable  valuation  must  vary  with  the  circumstances  of  each 
particular  case. 

The  basis  of  present  value  adopted  in  the  Knoxville  Water 
Company  case  was  cost  of  reproduction  less  an  allowance  for 
depreciation  in  order  to  make  up  the  difference  between  the 
value  of  new  and  old.  Such  a  basis  in  the  case  of  land,  especi- 
ally in  a  growing  city,  tends  to  make  the  cost  of  reproduction 
exceed  the  original  cost,  and  in  the  case  of  railroads  especially  is 
almost  sure  to  make  present  value  greatly  m  excess  of  cost  to 
the  companies.  It  has  therefore  been  contended  with  much  m- 
genuity  and  force  that  the  basis  for  rate  regulation  should  not 
exceed  the  capital  actually  invested.    In   Willcox  v.   Consolidated 

^Illinois  Cent.  R.R.  v.  Inter.  Com.  Comm.,  206  U.  S.  441  (1907). 
^Louisiana  R.R.  Comm.  v.  Cumberland  Tel.  Co.,  212  U.  S.  414  (1909). 


7o8  KAILWAV    rKOlVLEMS 

(fiis  Cm.,^  it  was  argued  that  one  gas  company  sliould  not  be 
l)riniii It'll  to  charge  more  than  another  lor  the  sole  reason  that 
movements  of  population,  iinintluenced  by  either  company,  had 
I'aused  the  site  of  its  plant  to  be  more  vahiable  if  vacated  and 
sold ;  for  it  was  said  that  although  the  fortunate  company  was 
entitled  to  obtain  the  full  value  of  the  land  when  sold,  the  unreal- 
ized profit  meanwhile  did  not  represent  profit  used  hi  the  manu- 
facture and  distribution  of  gas,  but  rather  represented  wealth 
which  the  manufacture  and  distribution  of  gas  keeps  out  of  use. 
This  argument  seems  sound.  '^Fhe  circumstances  of  the  case  did 
not  call  for  an  answer  by  the  court.  It  did,  however,  distinctly 
reject  the  basis  of  actual  cost  even  in  the  case  of  land.  It  held 
that  the  value  of  the  property  must  be  determined  as  of  the  time 
when  the  uitpiiry  was  made  regarding  rates ;  that  the  company 
was  entitled  to  the  benefit  of  any  increase  of  value.  That  is  in 
harmony  with  the  general  rule  of  law  which  permits  the  owner 
of  real  estate  to  profit  by  any  increase  in  the  value  of  his  land. 
Obviously,  however,  if  we  are  to  uphold  the  rule  that  a  public 
service  corporation  is  entitled  only  to  a  reasonable  return  and 
that  the  public  are  entitled  to  be  served  at  reasonable  rates,  we 
must  apply  the  rule  of  reasonableness  to  the  amount  of  the  in- 
vestment, as  was  done  in  the  San  Diego  Water  case.  The  Court 
recognized  this,  for  it  said  there  might  be  an  exception  to  the 
rule  where  the  property  had  increased  so  enormously  in  value  as 
to  render  a  rate  permitting  a  reasonable  return  upon  such  in- 
creased value  unjust  to  the  public.  This  makes  the  reasonable- 
ness of  the  amount  allowed  for  value  of  the  property  depend  on 
the  reasonableness  of  the  rate  to  the  public;  but  since  the  rate 
must  afford  a  reasonable  return  to  the  company  also,  we  are  at 
once  reasoning  in  a  circle.  The  basis  suggested  by  Mr.  Whitney, 
in  his  argument  as  counsel,  seems  a  better  one,  —  that  the  value 
allowed  should  be  the  estimated  cost  of  replacing  the  land  in  use 
with  other  land  capable  of  accomplishing  the  same  result.  Proba- 
bly no  one  would  contend  that  if  a  gas  company  had  been  so 
fortunate  as  to  locate  its  works  at  the  corner  of  Broad  and  Wall 
Streets,  and  its  land  had  attained  the  enormous  value  that  there 
1  212  U.  S.  19  (1909). 


CONSTITUTIONAL  RATE  REASONABLENESS      739 

prevails,  it  should  be  entitled  to  a  return  from  its  gas  sales  on 
the  present  value  of  the  site.  Prudent  management  would  require 
removal  to  a  less  expensive  site  better  adapted  for  the  business. 

The  more  difficult  question  that  arose  in  the  Gas  Company 
case  was  the  valuation  of  the  franchise.  As  to  the  general  ques- 
tion of  the  propriety  of  including  tlie  value  of  the  franchise  m 
the  valuation  of  the  property,  the  opinion  gives  httle  light.  All 
that  was  decided  was  that  it  was  proper  to  mclude  in  the  valua- 
tion, the  value  attributed  with  tlie  consent  of  the  state  to  the 
franchises  at  the  time  of  the  consolidation  of  the  companies,  upon 
which  uivestors  had  relied  ;  and  that  it  was  wrong  to  liold,  as 
the  court  of  first  instance  did,  that  the  value  of  the  franchise  had 
increased  in  the  same  ratio  as  the  value  of  the  tangible  property. 
When  it  came  to  the  general  question,  the  Court  said  that  to  allow 
for  increased  value  of  the  franchise  was  too  much  a  matter  of 
pure  speculation  and  also  opposed  to  the  principle  upon  which 
such  valuation  should  be  made.  Whether  the  Court  meant  merely 
that  the  evidence  in  the  particular  case  was  not  sufficiently  certain 
to  justify  the  increased  valuation,  or  whether  it  meant  that  upon 
principle  the  valuation  of  the  franchise  ought  not  under  ordmary 
circumstances  to  be  included,  the  opinion  leaves  m  doubt. 

The  court  calls  attention  to  the  fact  that  the  franchise  was 
subject  to  the  legislative  right  to  so  regulate  tlie  price  of  gas  as 
to  permit  no  more  than  a  fair  return  upon  the  reasonable  value 
of  the  property.  It  would  have  been  but  a  step  to  hold  that  to 
base  the  return  to  the  company  upon  tlie  value  of  such  a  franchise 
would  be  impossible,  since  the  value  of  the  franchise  m  turn  de- 
pended on  the  rates.  The  two  being  dependent,  one  on  the  other, 
neither  could  furnish  a  substantial  basis  for  fixing  the  other.  As 
Judge  Savage  well  said  in  a  case  in  Maine,^  "  to  say  that  the 
reasonableness  of  rates  depends  upon  the  fair  value  of  the  property 
used  and  that  the  fair  value  of  the  property  used  depends  upon  the 
rates  which  may  be  reasonably  charged  seems  to  be  arguing  in  a 
circle."  There  is,  however,  as  he  points  out,  a  sense  in  which  the 
value  of  the  franchise  must  be  considered.  It  is  the  franchise, 
the  right  to  operate  and  if  possible  to  earn  a  dividend,  that  makes 

1  Brunswick  &  T.  Water  District  v.  Maine  Water  Co.,  59  Atl.  Rep.  537  (1904). 


710  l^ATT.^v.\^    pkoulems 

tilt'  ilitference  between  a  lot  of  junk,  —  old  rails,  pipes,  and  the 
like,  —  not  worth  recovering  from  their  situation  in  and  upon  the 
ground,  and  a  completed  plant,  railroad,  water  works,  gas  works, 
as  the  ease  may  be.  This  is  a  part  of  the  value  of  a  going  concern, 
the  allowance  for  which  the  court  refused  to  pass  upon  in  the 
Knoxville  Water  Co.  case.  Even  though  the  franchise  is  rev- 
ocable, the  fact  that  the  plant  has  a  legal  right  to  exist  gives 
added  value  to  the  physical  structures.  The  value  of  a  rightfully 
existing  structure  which  may  be  lawfully  used  is  very  different 
from  the  value  of  the  same  structure  without  the  legal  right  to 
use  it  for  the  purpose  for  which  it  was  assembled.  Quite  recently, 
in  the  valuation  of  the  Omaha  Water  Works,^  the  court  has  ex- 
pressly approved  an  appraisal  of  the  value  as  a  going  concern. 
"  The  difference  between  a  dead  plant  and  a  live  one,"  said  Justice 
Lurton,  "  is  a  real  value,  and  is  uidependent  of  any  franchise  to 
go  on,  or  any  mere  good  will  as  between  such  a  plant  and  its 
customers." 

Although  ordinarily  the  value  of  a  franchise  is  not  enhanced 
by  the  prospective  profit  from  any  particular  schedule  of  rates, 
there  is  an  exception  where  by  reason  of  a  contract  protected  by 
the  contract  clause  of  the  Federal  constitution,  the  corporation 
may  continue  to  charge  specified  rates  for  a  definite  time.^  The 
courts  insist  on  finding  the  elements  of  a  contract  as  they  would 
between  individuals.  There  must  be  an  agreement  upon  sufficient 
consideration.  Where  the  contract  is  made  by  a  municipality, 
there  must  be  legislative  authority  in  the  municipality  to  make 
the  contract ;  and  such  legislation  is  construed  strictly  in  favor 
of  the  public ;  authority  to  fix  and  determine  rates  does  not 
authorize  a  municipality  to  make  a  bargam  by  which  it  ties  itself 

1  Omaha  v.  Omnha  Water  Co.,  218  U.  S.  180  (1910). 

2ios  Angeles  v.  Los  Angeles  City  Water  Co.,  177  U.  S.  558  (1900)  ;  Detroit 
V.  Detroit  Citizens  Street  Railway  Co.,  184  U.  S.  368  ;  Cleveland  v.  Cleveland  City 
By.  Co.,  194  U.  S.  517  (1904)  ;  Cleveland  v.  Cleveland  Electric  Railway  Co.,  201 
U.  S.  529  (1906)  ;  Vicksburg  v.  Vicksburg  Water  Works  Co.,  206  U.  S.  496  (1907). 
See  also  New  Orleans  Water  Works  Co.  v.  Rivers,  115  U.  S.  674  (1885)  ;  (sustain- 
ing an  exclusive  right  to  supply  water)  ;  New  Orleans  Gas  Co.  v.  Louisiana  Light 
Co.,  115  U.  S.  650  (1885)  ;  (sustaining  an  exclusive  right  to  supply  gas)  ;  Walla 
Walla  V.  Walla  Walla  Water  Co.,  172  U.  S.  1  (1898). 


CONSTITUTIONAL  RATE  REASONABLENESS      741 

up  for  the  future.^  Another  exception  may  be  suggested,  —  the 
investment  by  present  owners  in  rehance  upon  the  continuance 
or  value  of  the  franchise.  To  what  extent,  if  at  all,  this  element 
may  enter  mto  the  calculation  has  not  been  expressly  decided, 
nor  does  the  Gas  Company  case  settle  the  question.  It  settles 
indeed  that  under  some  circumstances  such  allowance  must  be 
made ;  but  no  attempt  is  made  to  define  the  circumstances  with 
precision. 

The  Court  held  that  the  Gas  Company  case  was  not  one  for 
the  valuation  of  good  will  because  the  complamant  had  a  monop- 
oly in  fact  and  the  consumer  must  take  gas  from  it  or  go  with- 
out ;  he  must  resort  to  the  old  stand  whether  he  would  or  no. 
The  Court  held  also  that  there  was  no  particular  rate  of  com- 
pensation which  must  in  all  cases  and  m  all  parts  of  the  country 
be  regarded  as  sufficient  for  capital  invested  m  business  enter- 
prises ;  the  amount  of  risk,  the  locality  where  the  business  is 
conducted,  the  rate  expected  and  usually  realized  there  upon 
investments  similar  in  character,  were  all  mentioned  as  factors, 
and  it  was  held  that  under  the  circumstances  of  the  gas  business 
in  the  city  of  New  York,  six  per  cent  was  a  proper  return. 

The  element  of  wages  of  superintendence,  which  Mr.  Whitney 
in  his  argument  conceded  must  be  covered  by  the  returns  to  the 
company,  was  left  out.  In  one  sense  this  is  not  a  return  upon 
capital  but  wages  of  labor,  and  if  it  were  possible  for  earnings 
due  to  the  skill  with  which  the  business  is  managed  to  be  secured 
to  those  alone  whose  skill  produced  the  result,  perhaps  no  more 
need  be  said.  Practically,  however,  the  earnings  depend  m  part, 
sometimes  in  large  part,  not  upon  the  skill  in  actual  present-day 
management,  but  upon  the  satisfaction  with  wliicli  the  public 
has  been  served  in  the  past,  perhaps  by  men  long  smce  dead. 
Given  equal  and  reasonable  rates,  one  company  will  be  able  to 
earn  large  dividends,  and  another  perhaps  unable  to  pay  its  way; 
and  this  result  may  be  due  not  to  any  less  efficient  management, 

1  FreepoH  Water  Co.  v.  Freeport  City,  180  U.  S.  587  (1901)  ;  Danville  Water 
Co.  V.  Danville  City,  180  U.  S.  619  (1901)  ;  Rogers  Park  Water  Co.  v.  Fergus, 
180  U.  S.  624  (1901)  ;  Knoxville  Water  Co.  v.  Knoxville,  189  U.  S.  434  ;  Rome 
Telephone  Co.  v.  Los  Angeles,  211  U.  S.  265  (1908). 


742  KM  I. WAV   IMJOl'.LE^rS 

but  merely  to  the  faet  that  one  has  hecn  loiio-  in  satisfactory- 
operation  Nvhile  the  other  is  new  and  not  yet  in  vogue.  The 
greater  earnings  of  the  one  may  even  be  due  to  the  mere  caprice 
oi  fashion.  But  to  whatever  cause  it  is  ihie,  difficulty  will  arise 
unless  allowance  be  made,  either  by  inereasing  the  capital  valua- 
tion on  whii'li  the  company  is  permitted  to  earn  a  return,  by  way 
of  a  valuation  of  a  going  concern  or  the  value  of  the  probability 
of  an  already  assured  income,  or  else  by  allowing  an  additional 
return  on  the  valuation  minus  this  mcrement,  by  way  of  extra 
compensation  for  the  greater  skill  or  the  greater  satisfaction  with 
which  it  serves  the  public.  Even  in  the  case  of  so  close  a  monop- 
oly as  the  Gas  Company  in  New  York  City,  it  is  not  impossible 
that  some  of  its  earnings  may  have  been  due  to  this  cause ;  for 
although  it  had  a  monopoly  of  the  supply  of  gas  through  pipes 
in  the  streets,  it  ma}'  have  had  competition,  in  the  supply  of 
light,  heat,  and  power,  from  the  electric  companies.  Although 
legally  permissible,  it  would  often  be  impracticable  to  cut  doAvii 
rates  to  a  level  that  would  aif ord  a  fair  return  to  one  company 
upon  a  valuation  that  failed  to  take  into  account  the  element  of 
value  of  a  going  concern  or  an  assured  income,  without  ruining 
its  weaker  competitor.  In  some  cases  such  lowering  of  rates 
would  prove  inadvisable,  especially  in  the  case  of  railroads.  One 
road  may  through  fortunate  investments,  the  discovery  of  valu- 
able minerals  along  its  route,  the  openhig  of  fertile  territory,  and 
a  rapid  increase  of  population,  prove  a  highly  profitable  invest- 
ment ;  another  at  the  same  rates  may  barely  pay  its  way ;  yet 
to  cut  down  rates  on  the  prosperous  road  so  as  to  reduce  its 
high  dividends  to  a  normal  level,  would  emphasize  and  accen- 
tuate the  advantage  already  possessed  by  those  along  its  line 
over  those  along  the  line  of  the  less  prosperous  road.  Either 
the  prosperous  road  must  be  allowed  to  earn  a  higher  return 
upon  the  valuation  or  the  valuation  nuist  allow  for  these 
elements. 

Up  to  the  present  time,  the  United  States  Supreme  Court  has 
not  been  called  upon  to  decide  what  elements  are  proper  to  be 
considered  m  determming  the  present  value  of  a  plant  of  a 
public-service  company.    That  the  value  of  the  plant  as  a  going 


CONSTITUTIONAL  RATE  REASONABLENESS      743 

concern,  not  only  ready  for  business  but  with  business  actually 
established,  is  greater  than  the  bare  cost  of  reproduction  of  the 
physical  plant,  is  recognized  by  cases  in  other  courts.  It  must 
be  so,  leaving  out  of  view  altogether  the  element  of  good  will, 
whicli  in  the  case  of  a  strict  monopoly  ought  to  be  disregarded. 
A  gomg  concern  has  necessarily  expended  money  in  various  ways 
aside  from  the  cost  of  physical  plant  in  order  to  get  going. 
The  cost  of  promotion  of  the  enterprise,  of  corporate  organiza- 
tion, of  obtaining  the  necessary  franchises,  permissions,  and  con- 
sents, of  securing  the  necessary  connections  with  other  companies 
by  rail  or  wire ;  the  cost  of  experiments  necessary  in  every  new 
industry,  and  the  often  rapid  substitution  of  improved  appliances 
before  the  cost  of  the  old  can  have  been  recouped  out  of  earn- 
ings ;  the  cost  of  developing  tlie  lousiness  including  the  oft-times 
necessary  loss  attending  the  incomplete  stage  of  the  plant,  or  the 
introduction  of  new  appliances  and  methods ;  the  cost  of  financ- 
ing the  enterprise,  including  interest  on  capital  sunk  before  any 
returns  begin  to  come  in,  —  all  go  to  make  up  the  cost  of  a  com- 
plete going  plant,  and  are  all  expenses  that  a  new  enterprise 
must  needs  incur. 

The  United  vStates  Supreme  Court  has  not  as  yet  been  called 
upon  to  analyze  the  costs  of  operation  and  to  decide  what  items 
of  cost  of  operation  ought  to  be  included  in  the  annual  charges 
before  the  profit  can  be  ascertained.  Professor  Wyman  has  dealt 
with  the  subject  in  a  satisfactory  way  ^  and  the  scope  of  this 
article  does  not  call  for  its  further  discussion. 

The  question  presented  by  a  schedule  of  rates  under  the 
Fourteenth  Amendment  is  whether  the  schedule  permits  a  fair 
return  upon  a  reasonable  valuation  or  .is  so  low  as  to  amount  to 
confiscation.  This  involves  different  considerations  from  those 
involved  when  the  only  question  is  the  propriety  of  the  rate  on 
a  single  article.  It  cannot  be  foretold  what  effect  a  cliangB  of 
certain  rates,  for  example  on  coal  or  gas,  will  produce  on  the 
net  revenue  of  the  business  as  a  whole.  This  difficulty  has  been 
met  by  the  adoptioii  of  a  tentative  course,  leaving  it  for  time 

1  Wyman  on  Public  Service  Corporations,  §  1150  et  seq. 


744  KAIl.WA^     I'KOr.LEMS 

and  experience  to  deteiiuiiu'  wlK'ther  coustitutioual  rights  have 
boon  infrino-ed.^ 

A  most  sorious  diriiculty  is  prosentod  by  our  dual  form  of 
govornniout.  It  is  beyontl  tiio  scope  of  the  present  discussion  to 
treat  the  numerous  cases  deahng  with  the  conniierce  clause,  and 
the  question  what  is  interstate  and  what  is  intrastate  commerce. 
The  net  return  to  a  railroad  com})any,  —  and  it  is  to  railway 
trathc  that  the  questions  most  frequently  relate,  —  depends  on 
the  relation  between  its  income  from  whatever  source  derived 
and  its  outgoes  whether  for  the  conduct  of  interstate  or  hitra- 
state  business.  The  two  are  inextricably  intermingled,  and  the 
problem  of  preserving  the-  rights  and  powers  of  both  the  state 
and  the  federal  governments  is  one  of  the  problems  of  the  future. 

Francis  J.  Swayze 

1  Willcox  V.  Consolidated  Gas  Co.,  212  U.  S.  19  ;  Northern  Pacific  Ky  v.  North 
Dakota,  216  U.  S.  579. 


XXVII 

THE  ENGLISH  RAILWAY  AND  CANAL 
COMMISSION  OF  1888  i 

TTT'HILE  the  law  providing  for  the  Commission  of  1873 
*  ^  passed  both  Houses  of  Parliament  with  comparative  ease 
and  received  but  little  opposition  from  the  railway  interest,  the 
law  of  1888  developed  by  small  degrees,  and  met  much  oppo- 
sition. The  report  of  the  Committee  of  1881  had  stated  that  a 
permanent  railway  tribunal  was  necessary .^  Railway  Commis- 
sion legislation  was  introduced  regularly  between  188^  and 
1886.  In  1885  the  nine  principal  railways  submitted  bills  to 
Parliament  embodying  a  general  classification  and  a  rearrange- 
ment of  their  maximum  rates.  But  the  protests  of  the  traders 
led  to  the  withdrawal  of  these  measures.  The  defeat  of  the 
government  in  1886  on  the  Irish  Question  prevented  any  further 
action  at  that  time.  In  1887  a  regulative  measure,  which  in 
some  respects  resembled  the  legislation  of  the  following  year, 
passed  the  House  of  Lords. 

So  far  as  the  form  of  the  Commission  is  concerned,  the  most 
important  changes  introduced  by  the  legislation  of  1888  were 
the  court  organization  of  the  Commission  and  the  limitation  of 
the  right  of  appeal.  Under  the  old  organization  the  Commission 
was  considered  to  be  in  the  same  position  as  any  inferior  court, 
and  might  be  prohibited  from  proceeding  in  matters  over  which 
it  had  no  jurisdiction.^  Now,  by  giving  the  Commission  a  definite 

1  From  the  Quarterly  Journal  of  Economics,  Vol.  XX,  1905,  pp.  1-55.  The 
author  was  the  expert  employed  by  the  Canadian  Government  m  1902  to  draw 
up  its  Report  upon  Railway  Rate  Grievances  and  Regulative  Legislation.  Brit- 
ish Railway  Statutes  and  Regulations  are  reprinted  in  full  in  Hearings  before  the 
Senate  (Elkins)  Committee  on  Interstate  Commerce,  1905,  Vol.  V,  Appendix, 
pp.  133-264.         2  Report  of  Select  Committee  on  Railways,  1881,  Part  I,  p.  iii. 

3  Toomer  v.  L.  C.  D.  Ry.  Co.  and  S.  E.  Ey.  Co.,  3  Ry.  and  Canal  Traffic 
Cases,  98. 

745 


740  KA11>\\A^     I'KOI'.I.K.MS 

court  (irtx;ini/ivtion  and  by  niakini;  its  decisioiis  liiuil  on  questions 
of  fact,  nnu'h  stieni^th  was  acUUnl. 

TIk'  now  legislation  provided  for  a  Connnission  of  five  mem- 
bers, composed  of  two  lay  and  three  e.v-officio  members.  The 
cx-officio  members  are  superior  court  judges,  one  for  England, 
one  for  Scotland,  one  for  Ireland.  The  active  Commission  at 
any  one  time  has  a  membership  of  three,  the  two  lay  commis- 
sioners presided  over  by  the  designated  superior  court  judge  of 
the  country  in  which  the  Commission  is  sitting.^  While  the 
judges  who  serve  on  the  Conmiission  are  ap})ointed  for  terms  of 
five  years,  the  lay  commissioners  hold  office  on  a  good-conduct 
tenure.  The  old  provision  whereby  one  of  the  lay  commissioners 
was  to  be  "of  experience  in  railway  business"  was  continued; 
and  Mr.  Price,  the  railway  member  of  the  former  Commission, 
was  reappointed.  The  qualification  of  the  other  lay  commissioner 
was  not  specified.  To  this  position  Sir  Frederick  Peel,  whose 
training  was  legal  and  who  had  been  a  member  of  the  Railway 
Commission  in  1873,  was  appointed.  The  lay  commissioners 
were  admonished  of  their  judicial  functions,  for  in  their  letters 
of  appointment  they  were  informed,  "  Doubtless  you  will  feel 
that  the  judicial  nature  of  your  office  is  also  incompatible  with 
any  active  engagement  in  political  controversies." 

In  every  possible  way  the  fact  was  emphasized  that  the  Com- 
mission was  a  court,  and  therefore  not  concerned  with  rate 
making.  The  control  of  matters  pertaining  to  rates  was  divided. 
Powers  in  regard  to  conciliation  of  rate  difficulties  were  given 
to  the  Board  of  Trade.  When  the  provision  placing  the  revision 
of  maxima  and  of  classification  in  the  hands  of  the  Board  of 
Trade  was  under  consideration,  an  amendment  to  place  such 
revision  in  the  hands  of  the  Commission  was  negatived. 

The  Act  of  1888,  while  it  repealed  portions  of  the  railway 
regulative  acts  already  in  existence,  did  not  codify  the  portions 
remaining.    Consequently  there  are  still  in  effect  sections  of  the 

1  The  draft  legislation  of  1887  had  provided  a  cumbrous  arrangement  where- 
by the  judicial  commissioner  was  to  preside  when  a  question  of  law  was  involved, 
while  in  other  matters  his  attendance  was  to  be  invited  by  the  lay  commissioners, 
"  if  it  was  expedient  for  the  better  performance  of  the  Commission's  duties." 


ENGLISH   RAILWAY  COMMISSION  747 

Railway  Clauses  Consolidation  Act,  1845,  the  Railway  and 
Canal  Traffic  Act,  1854,  the  Regulation  of  Railways  Act,  1868, 
and  the  Regulation  of  Railways  Act,  1873.  Since  1888  juris- 
diction in  regard  to  actual  rates  has  been  given  by  an  Act  of 
1894  ;  while,  under  a  law  of  1904,  the  powers  of  the  Commis- 
sion in  regard  to  private  sidings  have  been  made  more  definite 
by  an  interpretation  of  the  "  reasonable  facilities  "  clause  of  the 
Act  of  1854.1 

While  the  jurisdiction  given  by  the  Act  of  1888  embraces  a 
variety  of  functions,  the  most  important  of  which  are  undue 
preference,  facilities  for  traffic,  traffic  on  steamboats,  through 
rates,  rate  books,  terminals,  legality  of  rates,  provisions  relating 
to  private  branch  sidings,  and  references  under  the  Board  of 
Trade  Arbitrations  Act,  1874,  the  most  important  matters  from 
the  standpoint  of  the  traders  are  (a)  terminals,  (b)  reasonable 
facilities,  (e)  through  rates,  (d)  undue  preference,  (e)  control 
over  actual  rates. 

Terminals,  Reasonable  Facilities  and  Through 

Rates 

The  history  of  the  terminal  question  is  a  long  and  involved 
one.  When  the  earlier  railways  were  chartered,  the  "  canal  toll  " 
idea  prevailed.  For  a  time  carriers,  already  in  existence,  quoted 
through  rates  over  the  railway  lines,  making  such  arrangements 
as  they  deemed  proper  in  regard  to  payments  for  special  services 
and  for  station  terminals.  It  was  not  long,  however,  before  the 
railways  controlled  the  forwarding  business,  and  complaint  soon 
arose.  The  railways  claimed  the  right,  in  addition  to  the  powers 
given  them  under  their  maximum  rates,  to  make  charges  for 
additional  services  and  for  terminals.^  The  traders  contended 
that  the  maximum   rates  covered  all  that  the  railways   were 

1  For  detail  concerning  the  unrepealed  sections,  see  Woodfall,  The  New  Law 
and  Practice  of  Railway  and  Canal  Traffic,  etc.,  Appendix  A. 

2  The  question  of  terminals  has  come  up  in  the  United  States.  The  charter 
of  the  Pittsburg  &  Connellsville  Railway  gave  it  the  right  to  charge  tolls.  It  was 
decided  it  had  the  right  to  charge  terminals  as  well.  National  Tube  Works  v. 
Baltimore  &  Ohio  E.R.  (Penn.),  28  Am.  andEng.  R'd  Cases,  13. 


748  KAILWAV    rKor.Ll'LMS 

legally  empowered  to  collect.  It  was  concerning'  the  station 
terminals,  however,  that  tlie  keenest  contention  existed.  U'he 
Select  C'onnnittee  of  1882  had  recommended  that  terminal 
diaries  should  be  recognized,  but  that  they  should  be  subject 
to  publication  by  the  companies,  and  that  in  case  of  challenge 
they  should  be  sanctioned  by  the  Railway  Commission.^  A 
clause  to  this  effect  Avas  contained  in  the  regulative  measure 
introduced  by  Mr.  Chamberlain  in  1884.  In  a  decision  of  the 
Court  of  Queen's  Bench  in  1885  the  right  of  the  railways 
to  collect  terminals  was  definitely  recognized.^  But  the  traders 
did  not  recognize  this  decision  as  final  ;  for,  because  of  a  tech- 
nical condition,  it  was  impossible  to  carry  the  case  before  the 
higher  courts.  While  the  legislation  of  1888  was  in  committee, 
various  attempts  were  made  to  place  the  control  of  terminals 
under  the  Railway  Commission,  as  well  as  to  provide  that  in 
every  case  the  maximum  rates  should  include  terminals.  But 
the  government  took  the  position  that  terminals  were  legally 
established,  and  so  they  were  given  explicit  recognition.      * 

The  Act  of  1888  had  recognized  terminals.  The  Provisional 
Orders  Acts  gave  them  definite  form.  The  matter  was  finally 
passed  on  by  the  Commission  in  1891  in  a  decision  which  up- 
held that  of  1885.^  Justice  Wills,  who  gave  the  decision  in  the 
former  terminal  case,  was  at  this  time  the  judicial  member  of 
the  Commission.  On  appeal  the  decision  of  the  Commission 
was  upheld.  While  the  question  of  the  legality  of  terminals 
has  thus  been  settled,  there  still  remains  the  question  of  the 
right  of  the  trader  to  be  exempt  from  the  payment  of  terminals 
under  special  conditions.    This  question  is  of  especial  interest 

1  Select  Committee  on  Railways,  1882,  pp.  v  and  xvii. 

-  Hall  V.  London,  Brighton,  it  South  Coast  Railway,  15  Q.  B.  D.  505.  This 
overruled  a  decision  of  the  Railway  Commission.  A  discussion  of  the  question 
from  the  traders'  standpoint  will  be  found  in  Hunter,  The  Railway  and  Canal 
Traffic  Act,  1888,  pp.  38-50.  See  also  British  Railways  and  Canals,  by  "Her- 
cules," chap,  ii  (a  pro-trader  brochure,  published  in  London  in  1885).  A  sum- 
mary of  the  railway  point  of  view  will  be  found  in  the  address  of  Mr.  Pope,  Q.C., 
representing  the  London  &  Northwestern  Railway  before  the  Board  of  Trade, 
October  29,  1889,  reported  in  Hallway  News,  November  2,  1889,  pp.  778-780. 
See  also  Grierson,  Railway  Rates,  English  and  Foreign,  pp.  93-106. 

3  Sowerby  &  Co.  v.  Great  Northern  By.  Co.,  7  Ry.  and  Canal  Traffic  Cases,  156. 


ENGLISH   RAILWAY  COMMISSION  749 

in  connection  with  the  mining  and  manufacturing  districts, 
where  the  establishments  furnishing  and  receiving  freight  are 
usually  situated  on  private  sidings  or  on  private  railways.  The 
importance  of  these  sidings  is  shown  in  the  fact  that,  while  at 
the  Sheffield  freight  station  the  tonnage  in  1900  was  580,000, 
at  a  near-by  siding  it  was  1,100,000.  In  1894  the  Commission 
was  given  jurisdiction  in  claims  for  exemption  from  payment 
of  terminal  charges  at  sidings  when  it  was  alleged  that  the 
services  had  not  been  performed.  Under  the  provision  of  the 
Act  of  1888,  requiring  the  railway  to  distinguish  conveyance 
from  terminal  charges,  it  had  been  held  that  the  responsibility 
of  the  railway  might  be  discharged  by  stating  that  the  whole 
payment  was  for  a  conveyance  rate.^  But  the  Court  of  Appeal 
decided  in  1897  that  it  was  incumbent  on  the  railway,  in  such  a 
case  to  prove  that  it  did  not  charge  for  terminals.^  The  Com- 
mission has  power  to  allow  a  rebate  from  sidings  charges  with- 
out proof  that  any  definite  amount  of  terminal  is  included  in 
the  rate.  A  prima  facie  case  for  such  a  rebate  is  made  out,  if 
it  is  shown  that,  in  respect  of  similar  traffic  between  substan- 
tially the  same  termini,  and  passing  over  substantially  the  same 
routes,  a  sidings  trader  who  does  not  require  or  use  any  terminal 
accommodation  or  services  is  charged  the  same  amount  as  a 
trader  who  uses  the  station.^  But  the  latter  rate  must  not  be 
simply  a  paper  rate.*  In  calculating  the  amount  of  the  rebate, 
it  has,  in  general,  been  the  practice  of  the  Commission  to  follow 
the  rule  in  Pidcock's  case  ;  i.e.,  to  assume  that  the  service  charges 
are  in  the  same  proportion  to  the  rates  actually  charged  as  the 
maximum  service  charge  would  be  to  the  sum  of  the  maximum 
rates,  —  i.e.,  the  maximum  rate  and  the  maximum  terminals.^ 


1  New  Union  Mill  Co.  v.  Great  Western  By.  Co.,  9  Ry.  and  Canal  Traffic 
Cases,  160. 

2  Salt  Union,  Ltd.  v.  North,  Staffordshire  By.  and  Others,  10  Ry.  and  Canal 
Traffic  Cases,  179. 

3  Vickers,  Sons  &  Maxim,  Ltd.  v.  Midland  By.  and  Others,  11  Ry.  and  Canal 
Traffic  Cases,  259. 

*  Cowan  &  Sons  v.  North  British  By.,  11  Ry.  and  Canal  Traffic  Cases,  271. 
^  Pidcock  V.  Manchester,  Sheffield  &  Lincolnshire  By.,  9  Ry.  and  Canal  Traffic 
Cases,  45. 


7.")0  KA1L\\A^■  rijor.Lic.Ms 

The  throngli-rale  chiiisc  of  the  Act  of  1888  i)rovides  tliat 
tlnouoli  rates,  stating  the  amount,  route,  and  apportionment  of 
tlio  rate,  may  be  proposed  by  a  railway,  a  canal  company,  or  a 
trader.  In  case  of  dispute  regaixling  the  rate  or  its  apportion- 
ment the  matter  is  brought  before  the  Conunission.  In  appor- 
tioning the  through  rate,  the  commissioners  are  to  consider  the 
special  circumstances  of  the  cases,  and  are  not  to  compel  any 
company  to  accept  lower  mileage  rates  than  it  may  for  the  time 
legally  be  charging  for  like  traffic,  carried  by  a  like  mode  of 
transit  on  any  other  line  of  communication,  between  the  same 
points,  being  the  points  of  departure  and  arrival  of  the  through 
route. 

Reasonable  facilities  in  general  must  be  such  as  can  reason- 
ably be  required  of  the  railway  company,  due  allowance  having 
been  made  for  the  way  in  which  the  service  is  already  performed.^ 
Similarly,  in  a  reduced  through  rate  there  must  always  be  con- 
sidered whether  there  is  a  commensurate  advantage  to  the  rail- 
way company .2  Prima  facie,  it  is  against  public  interest  to 
interfere  with  vested  legal  rights,  unless  some  compensation  or 
equivalent  is  given.  There  must,  therefore,  be  evidence  both  of 
public  interest  and  reasonableness  in  favor  of  the  rate  and  route 
sufficient  to  outweigh  the  former  considerations.^  The  fact  that 
two  competing  routes  will  tend  to  make  either  company  treat 
the  traders  more  reasonably  is  a  consideration  bearing  on  the 
question  of  public  interest.^  At  the  same  time  the  Commission 
will  not  grant  a  through  rate  which  creates  unhealthy  compe- 
tition.'^ If  there  are  grounds  for  the  Commission  granting  some- 
thing claimed  as  a  proper  facility  for  using  railways,  an  objection 
grounded  on  its  inconvenient  consequences  to  railway  companies 

1  Newry  Navigation  Co.  v.  Great  Northern  By.  (Ireland),  7  Ry.  and  Canal 
Traffic  Cases,  170. 

2  Plymouth  Incorporated  Chamber  of  Commerce  v.  Great  Western  By.  &  L.  & 
S.  W.  Ry.,  9  Ry.  and  Canal  Traffic  Cases,  72  ;  10  Ibid.  17. 

3  Bidcot,  Neivbiiry  &  Southampton  Ey.  v.  Great  Western  Ry.  &  L.  &  S.  W.  Ry., 

9  Ry.  and  Canal  Traffic  Cases,  210. 

*  Plymouth,  Devonport  (fc  S.  W.  Ry.  v.  Great  Western  Ry.  &  L.  &  S.  W.  Ry., 

10  Ry.  and  Canal  Traffic  Cases,  fiS. 

5  Didcot.  Newbury  &  Southampton  Ry.  v.  L.  &  S.  W.  Ry.  and  Others,  10  Ry. 
and  Canal  Traffic  Cases,  17. 


ENGLISH   RAILWAY  COMMISSION  751 

by  reason  of  arrangements  made  by  themselves  will  not  be  suffi- 
cient reason  for  not  granting  it.^  The  particular  circumstances 
of  the  proposed  route  and  rate  must  be  considered.  The  reason- 
ableness of  a  rate  over  a  proposed  route  is  not  to  be  measured 
by  an  existing  rate  over  an  alternative  route,  even  if  the  rate 
over  the  latter  route  may  be  reasonable.^ 

Incident  to  granting  a  through  rate,  a  through  booking  (tick- 
eting) arrangement  may  also  be  made.'^  While  the  Commission 
has  not  attempted  to  lay  down  any  general  principle  on  which 
through  rates  are  to  be  apportioned,  it  will  consider  any  special 
expenses  in  construction  or  special  charges  a  company  may  have 
been  empowered  to  make.*^  It  is  not  clear  that  the  Commission 
has  power  to  rescind  a  through  rate  once  established  under  the 
Act  of  1888.^    So  far  no  such  action  has  been  taken. 

In  the  claims  made  by  canal  and  by  dock  companies  to  obtain 
through  rates,  considerable  emphasis  has  been  laid  upon  the 
technical  interpretation  of  the  word  "  railway."  Thus  it  was 
decided  in  1897  that  the  powers  the  Manchester  Ship  Canal  pos- 
sessed to  construct  railways  on  its  quays,  although  these  rail- 
ways were  simply  for  its  own  service,  constituted  it  a  railway 
company.  In  1901  the  action  of  the  Commission  in  approving 
a  through-rate  arrangement  for  a  dock  company  was  overruled 
on  the  ground  that  the  railways  possessed  by  the  dock  company 
did  not  constitute  a  railway  within  the  meaning  of  the  act.^    In 

1  Corporation  of  Birmingham  cO  Sheffield  Coal  Co.,  Ltd.  v.  Manchester,  Sheffield 
&  Lincolnshire  By.,  Midland  By.,  &  L.  &  N.  W.  By.,  10  Ey.  and  Canal  Traffic 
Cases,  62. 

2  Didcot,  Newbury  &  Southampton  By.,  etc.  v.  Great  Western  By.,,  etc.,  ut  supra. 

3  Didcot,  Nexohury  &  Southampton  By.  v.  Great  Western  By.  ct  L.  d  S.  W. 
By.,  10  Ry.  and  Canal  Traffic  Cases,  1. 

*  Forth  Bridge  &  North  British  By.  Co.  v.  Great  North  of  Scotland  By.  & 
Caledonian  By.,  11  Ry.  and  Canal  Traffic  Cases,  1.  Tliis  would  cover,  for  ex- 
ample, "  bonus  mileage,"  or  an  arbitrary,  in  the  case  of  an  expensive  bridge. 

5  Great  Northern  Central  By.  (Ireland)  v.  Donegal  By.,  11  Ry.  and  Canal 
Traffic  Cases,  47. 

"  London  and  East  India  Docks  Co.  v.  Great  Eastern  By.  <(;  Midland  By.,  11 
Ry.  and  Canal  Traffic  Cases,  57.  This  was  a  majority  decision,  Peel  dissenting. 
The  decision  of  the  Court  of  Appeal  was  given  by  Mr.  .Justice  Wright,  who  was 
a  member  of  the  Commission  when  the  Manchester  Canal  case  was  decided. 
He  distinguished  the  cases. 


( •)J 


i;  \i  i.w  .\\    I'Kor.i.KMS 


I'.M);^  a  further  a[)pliratioii  ol'  tlie  sanui  company,  .sul)se(jueiit  to 
ils  arqiiisiiion  of  a  short  railway  with  which  it  had  made  connec- 
tions, was  refused  on  the  ground  lliat  the  dilliculties  of  exchange 
of  tratlic  did  not  justify  the  granting  of  such  an  application. 

The  Connnission  has  looked  at  each  through-rate  case  by  itself. 
It  has  refrained  from  proposing  a  through  rate.  It  has  limited 
its  action  to  the  acce[)lance  or  rejection  of  the  proposed  througli 
rate  as  brought  before  it.  The  power  to  propose  through  rates 
has  been  of  little  value  to  the  traders.  Normally,  they  have  not 
been  possessed  of  the  exact  knowledge  necessary  to  the  making 
of  a  through  rate,  with  the  result  that  they  have  been  suc- 
cessful only  in  one  out  of  five  applications.  The  following 
summary  gives  details  with  reference  to  the  through-rate  appli- 
cations formerly  acted  upon  by  the  Commission  : 


By  Canal 
Company 

By  Dock 
Company* 

By  Railway 

Company* 

By  Traders 

By  Municipal 

Corporation 
AND  Traders 

<u 

1 

1 
a 

CS 

O 

■a 

s 

1 

■a 

-    a 
2 
o 

■d 

1 

•a 

1 

-a 

Id 
1 

•a 

1895      . 
1800      . 
18!)7      . 
1898      . 
1809      . 
1000      . 
1001 

1902  . 

1903  . 

2 

1 
1 

- 

1 

2 

1 
3 

2 

1 

1 

1 

2 

- 

1 

*  No  action  prior  to  1895. 


Undue  Preference 

The  question  of  "  undue  preference  "  has  long  engaged  atten- 
tion in  England.  Complaints  were  made  during  the  investiga- 
tions of  1882  that  many  anomalies  existed  in  domestic  rates. 
Thus  London  sugar  refiners  complained  that,  while  Greenock  was 
double  the  distance  from  given  points,  sugar  was  being  carried  to 


ENGLISH   KAILWAY  COMMISSION  753 

these  points  at  the  same  rates  as  were  given  to  London.^  But  it 
was  against  low  import  or  jjreferential  rates,  which  intensified  the 
competition  to  which  different  industries  were  subjected,  that 
special  attention  was  directed.^  The  Act  of  1873  had  left  much 
to  the  discretion  of  the  Railway  Commission  in  dealing  with  the 
question  of  undue  preference.  In  the  parliamentary  discussions 
of  1887  and  1888  there  were  constant  complaints  of  preferential 
rates.  It  was  stated  that  no  general  measure  dealing  with  rail- 
way traffic  could  be  considered  satisfactory  which  did  not  prevent 
preferential  rates  in  favor  of  foreign  products.^  The  government 
held,  however,  that  no  difference  should  be  made  between  Eng- 
lish merchandise  and  foreign  merchandise  because  of  origin."^ 

The  undue  preference  section  of  the  Act  of  1888  provides 
that  where,  for  the  same  or  similar  services,  lower  rates  are 
charged  to  one  shipper  than  are  charged  to  another,  or  any  dif- 
ference in  treatment  is  made,  the  burden  of  proof  that  such 
actions  do  not  constitute  an  undue  preference  shall  be  on  the 
railway.  In  considering  whether  the  action  complained  of  con- 
stitutes an  undue  preference,  the  commissioners  are  to  consider 
"  whether  such  lower  charge  or  difference  in  treatment  is  neces- 
sary for  the  purpose  of  securing  in  the  interests  of  the  public 
the  traffic  in  respect  of  which  it  is  made.  Provided  that  no 
raihvay  company  shall  make,  nor  shall  the  commissioners  sanction, 
any  difference  in  the  tolls,  rates,  or  charges  made  for  or  any  dif- 
ference in  the  treatment  of  home  and  foreign  merchandise  in 
respect  of  the  same  or  similar  services.'''  ^    The  final  clause  of  the 

1  See  evidence  of  J.  H.  Balfour  Browne  before  the  Select  Committee  of  1882, 
explanatory  of  the  factors  involved,  answers  to  questions  1297  and  1298. 

2  In  addition  to  the  evidence  bearing  on  this  point  contained  in  the  Select 
Committee  Report  of  1882,  see  also  detail  in  the  Report  of  the  Royal  Commis- 
sion on  Depression  of  Trade  and  Industry,  1886. 

3  Motion  of  Earl  of  Jersey,  Hansard,  1888,  third  series,  Vol.  .322,  p.  1796. 
This  was  defeated  by  a  vote  of  72  to  4.5. 

*  Lord  Sali.sbury,  Hansard,  1888,  third  series,  Vol.  32.3,  p.  1052. 

■'  I  have  italicized  this  so  as  to  bring  out  the  distinction  of  treatment  between 
liome  and  foreign  traffic.  In  the  bill,  introduced  in  1887,  clause  25  provided  that 
the  connnissioners  were  to  consider  whether  the  difference  in  charges  or  treat- 
ment was  necessary  "for  the  purpose  of  securing  the  traffic  in  respect  of  wliich 
it  was  made."  The  vague  phrase,  "  in  the  interests  of  the  pul)lic,"  contained  in 
the  legislation  of  1888,  was  placed  in  the  Bill  of  1887  by  amendment. 


754  KAii.w  \^    i'i;()1'.ij:ms 

section  pnihil)ils  ;i  liiyluT  charge  lor  similar  services,  for  the 
carriage  of  a  like  description  and  quantity  of  merchandise, 
for  a  less  than  is  charged  for  a  greater  distance  on  the  same 
line  of  railway.  The  concluding  clause  of  the  section  is  not 
only  wider  than  the  "  long  and  short  haul "  clauses  of  the  Ameri- 
can statute,  it  is  also  nuich  wider  than  the  prohibition  hitherto 
existing  in  English  legislation.  An  attempt  was  made  by  the 
railway  interest  to  have  a  "•  long  and  short  haul "  clause  placed 
in  the  legislation.  It  was  argued  that  where  a  question  of  pref- 
erential rates  came  up,  the  comparison  should  in  fairness  to  the 
railway  be  made  with  traffic  carried  over  the  same  portion  of 
the  line.i  It  was  held,  however,  that  the  consideration  of  this 
matter  could  safely  be  left  to  the  discretion  of  the  Commission. 
Complaints  concerning  undue  preferences  have  occupied  a 
prominent  place  before  the  Commission.  Broadly  speaking,  the 
subject-matter  of  these  falls  under  the  headings  of  :  (a)  differ- 
ential rates,  concerned  with  disparities  in  domestic  rates  and 
including  as  subheads  export  rates,  group  rates,  and  rebates  in 
respect  of  quantity  ;  (h)  jjreferential  rates,  concerned  with  dispari- 
ties between  home  and  import  traffic.  Before  1888  inequalities 
of  charges  for  like  services  were  only  prima  facie  evidence,  and 
the  burden  of  proof  was  on  the  complainant:  now  it  is  on  the 
railway.  In  the  earlier  decisions  no  rule  is  apparent.  Each  case 
was  considered  by  itself.  A  decreased  rate  to  develop  a  partic- 
ular traffic  in  a  particular  district  was  an  undue  preference. 
The  mere  fact  preference  existed  was  not  sufficient:  it  must  be 
shown  to  be  "  undue  "  and  "  unreasonable."  Differences  in  rate 
might  be  allowed  where  there  were  differences  in  the  cost  of 
conveyance.^ 

1  The  proposal  was  voted  down,  both  in  Grand  Committee  of  the  House  of 
Commons  and  in  the  House  itself.  The  motion  will  be  found  in  Hansard,  1888, 
third  series,  Vol.  329,  p.  452.  The  statement  of  Mr.  Acworth,  Hearings  before 
the  Committee  on  Interstate  Commerce  of  the  United  States  Senate,  etc.,  1905, 
Vol.  Ill,  p.  1851,  that  there  is  in  the  Act  of  1888,  a  "long  and  short  haul" 
clause  —  "the  short  distance  included  in  the  long  di.stance  "  —  is  evidently 
attributable  to  the  fact  that  he  had  not  a  copy  of  the  act  before  him. 

2  For  a  summary  of  the  law  on  this  point,  prior  to  1888,  see  Woodfall,  op.cit., 
pp.  77-82.    See  also  Darlington,  Railway  Rates,  chap.  iv. 


ENGLISH    RAILWAY  COMMISSION  755 

Additional  points  have  been  made  under  the  present  Com- 
mission. A  contract  to  give  exclusive  use  of  a  given  station  to 
a  particular  colliery  is  an  undue  preference,  as  are  also  lower 
tolls  given  by  a  navigation  company  to  prevent  a  large  dealer 
moving  his  business.^  Normally,  similar  charges  should  be  made 
for  similar  services.^  An  unreasonable  preference  is  a  question 
of  fact,  and  no  general  principle  will  be  laid  down.-^  Competi- 
tion is  a  circumstance  to  be  taken  into  consideration,  and  the 
extent  to  which  it  is  to  be  considered  is  a  question  of  fact,  not 
law."*  There  can  be  no  mathematical  equality  in  regard  to  the 
charges  or  advantages  between  places  which  are  outside  of  a 
group  and  the  different  members  of  a  group.  Competition  and 
convenience  to  the  neighborhood  are  to  be  considered  as  affect- 
ing the  justifiability  of  a  group  rate.^ 

On  the  question  of  differential  rates  the  Commission  has 
reversed  itself.  As  has  been  indicated,  the  Commission  is  em- 
powered to  consider  whether  the  rate  complained  of  "  is  neces- 
sary for  the  purpose  of  securing  in  the  interests  of  the  public 
the  traffic  in  respect  of  which  it  is  made."  In  1890 '^  complaint 
was  made  that  lower  rates  on  grain  and  on  flour  were  given  from 
Cardiff  to  Birmingham  than  from  Liverpool  to  Birmingham. 
The  distances  were  respectively  173  and  98^  miles.  The  rail- 
way company  contended  that  this  was  on  account  of  competition 
and  that  the  lower  rate  was  necessary  (1)  in  its  own  interest, 
(2)  in  the  interests  of  the  public.    Direct  inland  communication 

1  Rishton  Local  Board  v.  Lancashire  &  Yorkshire  By.,  8  Ry.  and  Canal  Traffic 
Cases,  74  ;  Fairweather  and  Others  v.  Corporation  of  York,  11  Ry.  and  Canal 
Traffic  Cases,  201. 

2  Timm  &  Son  v.  Great  Eastern  By.,  Lancashire  &  Yorkshire  By.,  and  Others, 
11  Ry.  and  Canal  Traffic  Cases,  214. 

3  Per  Lord  Plerschell  in  Pickering  Phipps  and  Others  v.  London  &  N.  W.  By. 
and  Others,  on  appeal,  8  Ry.  and  Canal  Traffic  Cases,  100,  101  ;  Inverness 
Chamber  of  Commerce  v.  Highland  Railway  Co.,  11  Ry.  and  Canal  Traffic 
Cases,  218. 

*  Pickering  Phipps,  case  cited,  p.  87.  Group  rates  are  authorized  by  Section 
20  of  the  Act  of  1888.  See  in  this  connection  the  important  decision  given  in 
iJenaby  ^fain  Colliery  Co.,  Ltd.  v.  M.  S.  &  L.  S.  By.,  11  App.  Cas.  97. 

5  Pickering  Phipps,  etc.,  87-88. 

^Liverpool  Corn  Traders'  Association  v.  London  &  N.  W.  By.,  7  Ry.  and 
Canal  Traffic  Cases,  125. 


7")(i  UAILWAN'    I'K'or.l.I'.MS 

exists  botwiHMi  Hristol  and  r)iniiiiiL;liain  by  way  of  the  Severn 
river  iuicl  euiial  navigation.  There  is  also  a  combined  sea  and 
rail  route. 

Justice  Wills  pertinently  said  Parliament  had  dealt  with  the 
matter  of  undue  preferences  with  a  "■  faltering  hand."  It  had 
left  to  the  Commission  the  responsibility  of  deciding  many  things 
which  would  more  naturally  have  been  laid  down  in  legislation.^ 
The  somewhat  inchoate  nature  of  the  undue-preference  clause 
is,  however,  more  correctly  attributed  to  its  compromise  origin. 
While  it  was  intended,  in  a  general  way,  that  the  phrase  "  in 
the  interests  of  the  public  "  should  protect  the  interests  of  the 
consumers,  Justice  Wills  was  undoubtedly  correct  in  saying  that 
Parliament  had  no  clear  idea  of  what  it  meant.  He  considered 
that  the  "public  interest"  must  be  something  wider  than  that 
of  one  of  the  two  localities  concerned,  and  stated  that  he  could 
not  see  that  any'  important  "public  interest"  would  be  affected 
if  the  traiilic  in  grain  and  flour  should  have  to  seek  some  other 
route  from  Cardiff  to  Birmingham .^  The  action  of  the  rail- 
way in  engaging  in  such  competition  created  artificial  conditions 
which  interfered  with  the  natural  course  of  trade.  Sir  Frederick 
Peel  put  this  point  still  more  strongly :  "A  traffic  which  differs 
only  from  other  traffic  in  being  competitive  can  liave  no  such  a 
distinction  made  in  its  favor,  however  necessary  a  lower  charge 
may  be  to  meet  the  competition,  or  however  much  it  may^  be  to 
the  benefit  of  the  com])any  to  secure  the  traffic."  The  attempt 
of  the  railway  to  compete  with  the  "  natural  advantages  "  of  the 
traffic  which  went  from  the  Severn  ports''^  by  sea  and  rail,  or  by 
inland  water  navigation,  to  Birmingham  was  unjustifiable.  His 
general  reasoning  rested  on  the  assumption  that  the  low  rail 
rate  from  Cardiff  gave  "little  or  no  profit,"  and  that  therefoie 
a  penalty  was  being  placed  on  Liverpool  in  the  "  highly  remu- 
nerative rate  "  it  paid.'* 

The  unsatisfactory  position  taken  by  this  decision  in  regard 
to  the  effect  of  competition,  and  the  extent  to  which  this  was 

1  p.  137.  M'p.  1.30-1.38. 

2  These  are  Cardiff,  Portishead,  Avonmouth,  Bristol,  and  Sharpness. 
4  Pp.  140,  141. 


ENGLISH  RAILWAY   COMMISSION  757 

to  be  taken  into  consideration,  was,  however,  apparently  justified 
by  the  decisions  on  the  matter.  While  the  law  was  confused  and 
contradictory,  the  leading  decision  —  Budd's  case  —  ruled  water 
competition  out  of  consideration.^  The  effect  of  water  compe- 
tition on  the  undue-preference  clause  was  brought  up  again  in 
1892.2  Complaint  was  made  of  an  undue  preference  in  flour 
and  grain  between  the  Severn  ports  and  Birmingham,  on  the  one 
hand,  and  Birkenhead  and  Birmingham,  on  the  other.  While 
the  rate  from  Birkenhead  to  Birmingham,  a  distance  of  98  miles, 
was  lis.  6ri.,  the  rate  from  Bristol  to  Birmingham,  a  distance  of 
141  miles,  was  8s.  Qd.  The  railway  contended  that  the  apparent 
anomaly  was  attributable  to  water  competition.  Both  a  majority 
and  a  minority  decision  were  given.  In  the  dissenting  opinion, 
delivered  by  Sir  Frederick  Peel,  it  was  held  that,  while  the  evi- 
dence justified  low  rates  from  the  Severn  ports,  at  the  same  time 
the  Birkenhead  rate  should  be  reduced  so  as  to  give  a  lower 
mileage  rate.  The  majority  opinion  upheld  the  railway  position. 
The  rates  complained  of  were  attributable  to  effective  competi- 
tion, maintained  by  a  competing  railway  and  by  water  compe- 
tition. The  existing  inequality  in  rates  was  necessary  to  give 
the  section  of  country  around  Birmingham  the  advantage  of 
the  supplies  both  from  the  Severn  ports  and  from  Birkenhead. 
Justice  Wills  stated  that  in  tlie  former  decision  he  had  construed 
"public  interest"  too  narrowly.  The  public  intended  was  the 
public  of  the  locality  or  district.  Any  considerable  portion  of 
the  population  in  general  as  opposed  to  an  individual  or  an 
association  was  sufficient.^ 

While  it  is  contended  that  one  principle  was  applied  in  the 
first  Corn  Traders'  case,  because  the  amount  of  traffic  affected 


1  Budd  (P.  O.)  V.  L.  <t-  N.  W.  By.,  4  Ky.  and  Canal  Traffic  Cases,  394.  The 
cases  bearing  on  this  subject  are  dealt  with  by  .Justice  Wills  in  his  decision. 
See  also  Lord  Herschell  in  Pickering  Phipps,  infra,  104,  105.  See  also  Butter- 
worth  and  Ellis,  A  Treatise  on  the  Law  relating  to  Rates  and  Trafhc  on  Hail- 
ways  and  Canals,  etc.,  pp.  168-170. 

2  Liverpool  Corn  Traders'  AHSociatlon  v .  Great  Western  Ry.,  7  Ry.  and  (^inal 
Traffic  Ca.ses,  114. 

^  Liverpool  Corn  Traders'"  Association  v.  Great  Western  Ry.,  7  Ry.  and  Canal 
Traffic  Cases,  127. 


(••S  KAii.w.w  im;(>i;i,i:ms 

was  small,  and  lliat  a  (lilTfn'iil  iiriuciplr  was  aj){)lie{l  in  the  sec- 
ond (.-asi'  because  the  amount  of  tialiic  alTecU'cl  was  large, ^  it 
woulil  apjiear  tliat  the  eiiangc  of  position  was,  in  reality,  attrib- 
utable to  a  deeision  in  a  case  appealed  from  the  Commission  in 
ISOl.-  In  this  the  construction  of  "public  interest"  had  been 
involved.  It  was  contended  that  a  dii^'erencc  in  rate  complained 
of  was  not  necessary  for  the  purpose  of  securing  the  trallic  in 
the  public  interest,  and  that  the  railway  in  making  such  a  rate 
was  seeking  its  own  interest,  not  that  of  the  public.  This 
attempt  to  exclude  the  railway  interest  from  "  public  interest " 
was  denied  by  Lord  Herschell.  The  point  which  should  be  con- 
sidered, he  stated,  was  not  only  the  legitimate  desire  of  the  rail- 
way to  obtain  traffic,  but  also  whether  it  was  in  the  interest  of 
the  railway  to  secure  this  traffic  rather  than  al)andon  it.  The 
legislature,  he  continued,  had  recognized  that  there  were  cases 
w^iere  the  traffic  could  not  be  obtained  if  the  lower  rate  was 
raised,  and  where  at  the  same  time  it  would  be  unfair  to  demand 
as  a  condition  of  obtaining  the  traffic  a  reduction  of  the  higher 
rate.^  By  judicial  construction  "  public  interest  "  has  thus  come 
to  mean  the  controlling  power  of  effective  competition  on  par- 
ticular rates.  Undoubtedly  there  was  a  desire,  when  the  legisla- 
tion was  under  consideration  in  Parliament,  to  give  the  phrase  a 
narrower  construction.  In  1887  it  was  stated  that  the  railway, 
in  carrying  traffic  on  a  rate  competitive  with  sea-borne  traffic, 
must  show  that  there  was  a  distinct  public  interest  involved.  The 
fact  that  some  additional  profit  was  obtained  by  engaging  in  such 
traffic  w^as  not  sufficient.^ 

The  "  long  and  short  haul  "  question  comes  before  the  Com- 
mission but  seldom.  When  it  does,  it  is  not  treated,  as  in  the 
United  States,  as  a  form  of  preference  demanding  exceptional 

1  See  Boyle  and  Waghorn,  The  Law  relating  to  Railway  and  Canal  Traffic, 
Vol.  I,  p.  4  ;  also  evidence  of  Mr.  W.  M.  Acworth,  Committee  on  Interstate 
Commerce,  etc.,  1905,  Vol.  Ill,  p.  1849.' 

2  Pickering  Phipps  and  Others  v.  L.  &  N.  W.  Ey.  and  Others,  8  Ry.  and  Canal 
Traffic  Cases,  83. 

'  Pickering  Phipps,  etc.,  102  and  lO.S. 

*  See  statement  of  Lord  Salisbury,  Hansard,  1887,  third  series.  Vol.  314, 
p.  332. 


ENGLISH  RAILWAY  COMMISSION  759 

treatment.  The  Commission  has  recognized  effective  competition 
as  a  justification  of  a  lower  rate  for  the  longer  distance.  Where 
a  higher  rate  is  charged  for  the  shorter  than  for  the  greater  dis- 
tance, the  less  being  included  in  the  greater,  the  Commission 
has  held  that,  in  the  absence  of  effective  competition  at  the  longer 
distance  point,  such  an  arrangement  is  not  justifiable,  and  that 
the  shorter  distance  point  should  share  on  a  mileage  basis  in  the 
low  rate  given  to  the  longer  distance  point.-^  The  effect  of  com- 
petition has  also  been  recognized  in  the  case  of  export  traffic. 
In  1903,  in  the  Spillers  &  Bakers  case,  a  low  "  shipment "  rate 
was  held  necessary  to  obtain  traffic.  It  was  considered  impossible 
to  raise  this  rate,  and  the  dissimilarity  of  circumstances  did  not 
warrant  a  comparison  of  the  higher  domestic  rate  with  the  lower 
export  rate.^  In  1904  a  briquette  manufacturing  firm  claimed 
that  it  was  unduly  prejudiced,  since  it  paid  the  domestic  rate  on 
its  raw  material,  while  the  manufactured  product  came  into  com- 
petition abroad  with  coal  carried  on  a  low  export  rate.  The  Com- 
mission upheld  the  principle  of  export  rates,  and  further  found 
that  the  railway  was  under  no  obligation  to  regulate  its  charges 
with  reference  to  the  ultimate  competition  complained  of.^ 

From  an  early  date  English  railway  law  has  held  that  whole- 
sale rates  for  large  shipments  do  not  constitute  an  undue  pref- 
erence. So  early  as  1858  in  Nicholson's  case,  a  leading  case,  it 
was  decided  that  carrying  at  a  lower  rate  in  consideration  of 
large  quantities  and  full  train  loads  at  regular  periods  was  justi- 
fiable, provided  the  real  object  was  to  obtain  a  greater  profit  by 
reduced  cost  of  carriage.  In  taking  this  point  of  view,  it  was 
recognized  that  various  shippers  would  necessarily  be  excluded 
from  the  advantage  of  the  low  rate  granted  on  such  conditions.^ 
In  the  decisions  of  the  Commission  of  1873  it  was  recognized 

1  Timm&  Sonsv.  N.  E.  By.,  Lane.  &  York  Ziy. ,  and  Others,  11  Ry.  and  Canal 
Traffic  Cases,  214. 

^  Spillers  <fc  Bakers,  Ltd.  v.  Taff  Vale  By.  ;  20  The  Times  L.  R.  101. 

•'  Lancashire  Patent  Fuel  Co.,  Ltd.  v.  L.  itN.  W.  By.,  Great  Central  By.,  and 
Others.    A  .summary  will  be  found  in  the  Bailway  Times,  August  13,  1904. 

*  Nicholson  V.  Great  Western  By.,  5C.  B.  (n.  s.);U)6.  The  te.st  of  the  agreement 
complained  of  will  be  found  in  the  footnotes  to  pp.  382-408.  See  also  Ecershedv. 
L.  tfe  .V.  \V.  By.  (1877),  2  Q.  B.  Div.  207. 


TiiO  K'Aii.w  .\^■  ri;(>i'.i.i:Ms 

that  lower  rates  miL^lit  l)r  givi'U  bei'ause  of  train-load  .sliipinents 
or  of  ability  to  load  a  greater  weight  into  trucks.^  The  general 
jnstilieation  of  such  arrangements  has  been  recognized  by  the 
present  ("onnnission. 

An  i'\ani{)le  from  a  case  decided  in  1900  will  indicate  the 
nature  of  the  arrangement.'-^  A  rebate  of  Sd.  per  ton  from  the 
establishetl  rate  was  to  be  made  on  condition  that  a  minimum 
shipment  of  25,000  tons  of  coal  a  year  was  guaranteed,  and  that 
the  arrangement  should  last  for  five  years.  The  Commission  has, 
in  various  cases,  held  such  rebates  excessive.^  The  ground  taken 
has  been  that  the  rebate  is  justified  by  a  reduction  in  cost  to  the 
company,  and  that  the  rebate  should  not  be  in  excess  of  the 
saving  to  the  company.  It  is  obvious  that  such  a  practice  as  this 
has  dangers  connected  with  it.  A  considerable  number  of  com- 
plaints have  been  directed  against  the  excessive  advantages 
obtained  by  Messrs.  Kickett,  Smith  &  Co.  under  their  rebate 
arrangement  with  the  Midland  liailway.  In  one  case,  though 
the  evidence  is  contradictory,  there  are  the  earmarks  of  a  secret 
rebate*  While  the  decisions  of  the  old  Commission  recognized 
bulk  of  traffic  as  a  justification  for  reduction  of  rates,  the  policy 
of  the  present  Commission  has  not  been  clear  cut.  In  some  cases 
it  has  recognized  quantity  as  a  justification  for  a  rebate.^  But 
it  has  in  other  cases  attempted  to  confine  cost  to  mere  economies 
of  bookkeeping,  attributable  to  more  prompt  settlements,  etc. ;  ^ 
and  it  has  expressed  the  dictum  that  rebates  in  respect  of  quantity 
would  justify  a  differentiation  of  charges  in  so  many  cases  that 

1  E.g.  Ransomev.  Eastern  Counties  Ry.  (No.  2),  1  Ry.  and  Canal  Traffic  Cases, 
109;  Girardot,  FUnn  &  Co.  v.  Midland  Ry.,  4  Ry.  and  Canal  Traffic  Cases,  291  ; 
Greenop  v.  S.  E.  Ry.,  2  Ry.  and  Canal  Traffic  Cases,  319. 

2  Daldyand  Others  v.  Midland  Ry.  and  Others,  10  Ry.  and  Canal  Traffic  Cases, 
305. 

8  E.g.  Charriwjton,  Sells,  Dale  &  Co.  v.  Midland  Ry.  Co.,  11  Ry.  and  Canal 
Traffic  Cases,  222  ;  Wallsall  Wood  Colliery  Co.  v.  Midland  Ry.,  Railway  Times, 
July  25,  1903. 

*  Charrington,  Sells,  Dale  &  Co.,  id  supra,  p.  229. 

fi  Daldy  and  Others,  ut  supra,  p.  310.  See  also  Ilickelton  Main  Colliery  Co.  v. 
Hull  &  Barnsley  Ry.,  Railway  Times,  July  25, 1903.  In  this  case  the  considera- 
tion of  the  lower  rate  was  a  minimum  of  38,000  tons  per  annum. 

^  E.g.  Charrington,  Sells,  etc.,  ut  supra,  230. 


ENGLISH  RAILWAY  COMMISSION  761 

the  rule  against  preference  would  be  in  danger  of  disappearing, 
"  and  the  small  trader  would  be  in  a  more  helpless  position  than 
the  position  in  which  he  now  is."  ^ 

While  the  traders  recognize  the  value  of  export  rates,  and  the 
effects  of  competition  thereon,  the  conditions  which  affect  the 
import  rate  are  often  neglected,  and  the  low  rail  rates  given  on 
imported  goods  are  often  attributed  to  the  stupidity,  if  not  turpi- 
tude, of  the  railways  in  preferring  home  to  foreign  goods.  When 
the  Act  of  1888  provided  that  the  Commission  should  not 
"  sanction  any  difference  ...  in  the  treatment  of  home  and  foreign 
merchandise  in  respect  of  the  same  or  similar  services,"  it  was 
claimed  that  this  absolutely  forbade  preferential  rates,  and  that 
the  home  traffic  would  therefore  be  carried  at  the  same  as 
that  of  foreigners.^  Notwithstanding  this  enthusiastic  prediction 
there  is  at  present  a  reiterated  demand  for  a  select  committee  to 
investigate  the  question  of  preferential  rates. 

The  discussion  of  preferential  rates  in  England  has  proceeded 
along  lines  familiar  to  every  student  of  the  effects  of  water  com- 
petition on  railway  rates.  "  Why,"  asks  one,  "  if  they  (the  rail- 
ways) can  carry  at  a  profit  from  foreign  countries,  can  they  not 
carry  home  produce  at  the  same  rate  ?  "  ^  If  the  London  &  North- 
western carried  a  train  load  of  meat  from  Liverpool  to  London 
at  25s.  because  it  was  American,  it  should  be  able  to  do  the  same 
wherever  the  meat  came  from.'^  '■'■Ex  hi/pothesi  they  (the  rail- 
ways) already  got  a  profit  out  of  the  produce  they  carried,  .  . . 
and  what  they  would  have  to  do  was  to  put  the  English  farmer 
and  producer  on  the  same  footing  as  the  foreigner."  ^ 

The  question  of  preferential  rates  was  brought  before  the 
Commission  in  1895  in  an  exceedingly  important  case,  which 

1  E.g.  Charrington,  Sells,  etc.,  ut  supra,  231. 

2  Wagliorn  and  Stevens,  Report  ujxin  the  Proceedings  of  the  In^iuiry  held  by 
the  Board  of  Trade,  1889  and  1890,  pp.  12  and  10(5.  This  report  to  tlie  Lancashire 
and  Cheshire,  Devon  and  Cornwall,  and  Irisii  Conferences  (traders'  organiza- 
tions), was  published  at  Manchester  in  1 890.  Itcontains  a  searching  but  extremely 
acrid  and  biased  examination  of  the  railway  position. 

•■5  Lord  rienniker,  Hansard,  1885,  third  series,  Vol.  315,  p.  412. 
*  Mr.  Mundella,  Hansard,  1888,  third  series.  Vol.  329,  p.  413. 
s  Mr.  Chamberlain,  Hansard,  1888,  third  series,  Vol.  339,  p.  446. 


7G2 


IJAII.W  W    ri.'Ol'.LKMS 


lasted  o\g\\[  days.^  (\)inj)laiiit  w  as  made  that  the  railway  charged 
l(»\vor  rates  I'roin  Southainpton  docks  to  London  on  the  follow- 
ing goods  of  foreign  origin  —  wool,  hay,  butter,  cheese,  lard,  hops, 
fresh  meat,  haeon,  hams  —  than  it  charged  on  similar  articles 
of  home  origin,  which  were  normally  carried  a  shorter  distance, 
and  that  the  services  rendered  in  respect  of  the  foreign  trallic 
were  not  less  than  those  rendered  for  the  home  traffic  in  the 
proportion  that  the  rates  were  lower.  A  few  examples  will  serve 
to  show  the  nature  of  the  disparity  complained  of :  — 


Station 

Distance 
Tkaveled 

Rates  on  Fresh  Meat,  Hav,  and  Hops  to  London 

Bate  for  Meat 

Rate  for  Hay 

Rate  for  Hops 

Southamiiton  docks 
Suuthainpton  town 

Alton 

Botley       .... 

76  miles 
70      " 
45      " 
70      " 

17s.  Gd. 

2Gs.  3d. 

9s.  2d. 

27s.  Gd. 

5s. 

9s.  8d. 
Is.  4d. 
9s.  8d. 

Os. 
20s.  lOtZ. 
20s. 
22s.  Id. 

Back  of  the  complaint  lay  a  competition  of  ports  for  foreign 
traffic.  The  London  docks  were  in  competition  with  the  South- 
ampton docks,  which  were  owned  by  the  London  &  South- 
western Railway .2  Competition  existed  between  the  all  water 
route  to  London  and  the  water  and  rail  route  via  Southampton. 

At  first  the  railway  endeavored  to  justify  the  apjiarent 
anomalies  on  the  grounds  that  the  rates  complained  of  were 
made  on  the  basis  of  water  competition,  and  that,  besides,  they 
were  l)alances  of  through  rates.  But  the  Commission  ruled  that 
such  matters  could  not  be  considered  in  evidence  under  the 
provisions  of  the  Act.  LInder  these  conditions  the  railway  had 
to  fall  back  on  the  unsatisfactory  standard  of  cost  of  service. 
It  was  shown  that  the  rates  for  the  home  traffic  covered  a 
variety  of  services  —  e.g.,  receiving,  weighing,  loading,  covering, 

1  Mansion  House  Association  on  Raiboay  and  Canal  Traffic/or  the  UnitedKing- 
dom  V.  London  &  Southwestern  Railvmy,  9  Ry.  and  Canal  'J'raffic  Cases,  20. 

2  When  the.se  docks  were  actjuired  by  the  railway  in  1892,  it  was  anticipated 
they  would  be  a  formidable  competitor  of  the  London  docks.  For  information 
descriptive  of  the  highly  developed  facilities  for  handling  traffic  at  the  South- 
ampton docks,  see  Railway  A(je,  July  1,  1904;  Railway  News,  .January  7,  1905. 


ENGLISH   RAILWAY  COMMISSION  763 

superintendence,  provision  of  station  accommodation,  switching 
—  which  were  not  included  in  the  rate  on  the  foreign  goods. 
The  foreign  merchandise  was  less  valuable,  less  liable  to  dam- 
age, more  easily  and  expeditiously  handled,  could  be  dealt  with 
at  times  more  convenient  to  the  railway,  always  in  larger  quan- 
tities, and  generally  in  a  much  more  economical  manner.  On 
account  of  better  baling,  to  cite  one  example,  three  tons  of 
foreign  hops  could  be  loaded  into  a  truck  that  would  hold  only 
two  and  a  half  tons  of  English  hops. 

The  traders  contended  that  such  conditions  of  traffic  as 
regularity  and  quantity,  while  admitted,  were  not  capable  of 
being  included  in  the  "  similar  services  "  spoken  of  in  the  undue 
preference  section.  Their  contention  was  in  substance  that, 
while  there  might  be  differences  in  the  case  of  home  traffic 
because  of  dissimilarity  of  circumstances,  in  the  case  of  the 
foreign  traffic  it  was  intended  that  there  should  not,  on  any 
account,  be  any  difference  in  favor  of  foreign  goods. 

Had  the  contention  of  the  traders  been  successful,  it  would 
have  established  a  principle.  But  the  decision  of  the  Commis- 
sion, which  has  been  claimed  as  a  victory  by  both  parties,  was 
of  a  compromise  nature,  and  proceeded  on  the  careful  lines 
already  laid  down  that  undue  preference  is  a  matter  of  the  facts 
of  the  particular  case.  The  articles  with  which  the  decision 
concerned  itself  were  hops,  fresh  meat,  and  hay.  These  were 
the  only  articles  in  which  there  was  any  considerable  traffic 
from  the  stations  intermediate  between  Southampton  and  Lon- 
don. The  rates  quoted  on  the  other  articles  were  simply 
"paper"  rates.  Sir  Frederick  Peel,  who  decided  on  the  facts, 
held  that  the  differences  between  the  home  and  the  import  rates 
on  meat,  hops,  and  hay  were  not  justified.^  While  his  colleagues 
accepted  this  opinion,  it  was  with  hesitation.  They  l)oth  had 
doubts  as  to  the  alleged  preference  on  meat,^  and  justly  so. 
Tlie  average  consignment  of  foreign  meat  from  Southampton 
was  37  tons.  In  a  period  of  seventeen  months  10,638  tons  of 
meat  were  shipped  in  286  consignments.  On  the  other  hand, 
from  Salisbury,  the  leading  Englisli  meat  center  concerned,  231 
1  Mansion  House  case,  pp.  38,  39.  2  HjUI^  pp.  32  and  43. 


7(14  l^\lI,^^A^    imiohlkims 

tons  in  825  consign nu'iits  were  shipped  in  the  same  period.  It 
is  ;ii>paront  that,  where  the  whole  series  of  costs  wouUl  be  so 
dilTerent,  the  (\)nnnission  strained  the  idea  of  cost  of  service  to 
the  breaking  point,  and  in  doing  so  favored  the  home  producer. ' 

The  decision  was  based  (.)n  the  idea,  manifestly  correct,  that 
it  w;\s  the  intention  of  tiie  statute  to  eliminate  competition  from 
the  factors  to  be  considiTod.  At  the  same  time  the  majority  of 
the  Commission  are  satislied  that  the  real  factor  controlling  the 
rate  situation  in  this  case  is  Avater  competition.  As  was  said  by 
Justice  Collins,  there  was  "  no  reason  or  principle  in  leaving  out 
of  account  the  fact  of  a  rival  route  by  rail  or  water  from  the 
point  of  departure  to  the  point  of  arrival  in  the  case  of  goods 
from  abroad  and  taking  it  into  account,  as  it  clearly  may  be 
taken  into  account,  where  the  comparison  is  between  home 
goods  only,"  ^ 

This  unsatisfactory  decision,  which  cost  the  traders  X2000 
in  law  costs,  obtained  no  general  principle  for  the  traders,  and 
at  the  same  time  forced  the  railways  to  depend  upon  the  arti- 
ficial justification  of  cost  of  service.  While  the  decision  is  of 
such  a  nature  that  in  a  case  where  there  is  real  competition  of 
home  and  foreign  products  a  different  verdict  might  be  given, 
no  further  action  in  regard  to  preferential  rates  has  been  taken 
before  the  Commission.  In  1899  the  question  of  preferential 
rates  was  brouofht  before  the  Board  of  Trade  under  the  concilia- 
tion  clause,  but  no  satisfactory  agreement  could  be  obtained.^ 

It  was  ]\Ir.  Chamberlain  who  introduced  into  the  legislation 
the  clause  under  discussion.  The  agitation  in  regard  to  prefer- 
ential rates  has  been  given  an  added  vigor  by  his  preferential 
trade  movement.  Back  of  much  of  the  outcry  concerning  pref- 
erential rates  is  a  hazy  protectionism.  The  support  Mr.  Cham- 
berlain has  obtained,  for  example,  in  the  iron  and  steel  industry 
is  in  considerable  part  due  to  preferential  rates  on  iron  and 

1  Mansion  House  case,  p.  32.  See  also  the  statement  of  Lord  Cobham  in  Didcot, 
Newbury  &  Southampton  By.  Co.  v.  Great  Western  By.  &L.  &  S.  W.  By.,  9  Ry. 
and  Canal  Traffic  Cases,  210. 

2  Case  16,  Seventh  Report  of  the  Board  of  Trade,  under  Section  31  of  the  Act 
of  1888. 


ENGLISH  EAILWAY  COMMISSION"  765 

steel  products,  although  the  matter  is  complicated  by  the  export 
rates  given  by  the  railways  of  competing  countries.^ 

The  control  over  docks  by  railway  companies,  which  was  ob- 
jected to  at  an  earlier  date  as  a  source  of  discrimination,^  has 
been  increasing  of  recent  years.  The  railways  have  found  it 
necessary  to  obtain  control  not  only  of  docks,  but  also  of  steamer 
lines  connecting  with  the  Continent,  in  order  to  obtain  the 
through  rates  which  are  necessary,  if  the  import  and  export 
traffic  are  to  balance,  and  thus  permit  a  more  economical  use  of 
rolling  stock.^  Complaint  is  made  that  the  railways  are  spend- 
ing large  sums  in  erecting  docks  and  warehouses  at  ports  in 
order  to  encourage  foreign  trade,  thereby  still  further  increas- 
ing the  number  of  preferential  rates.  The  provisions  of  the  Act 
of  1888  with  reference  to  the  right  of  the  traders  to  have 
through  rates  from  foreign  points  distinguished  into  their  do- 
mestic and  foreign  portions  are  somewhat  ambiguous.  In  the 
Southampton  case  the  traders  were  unable  to  ascertain  the  for- 
eign portion  of  the  rate.  As  a  result  of  this  condition,  an 
attempt  was  made  in  1904  to  obtain  a  provision  in  a  special 
railway  act,  requiring  that  the  railway  should  distinguish  on  its 
rate  books,  in  the  case  of  imports  on  a  through  rate,  the  portions 
attributable  to  (1)  land  carriage  abroad,  (2)  dock,  harbor,  and 
shipping  charges  abroad,  (3)  conveyance  by  sea,  (4)  dock,  har- 
bor, and  shipping  charges  at  the  British  port,  (5)  railway  charges 
in  the  United  Kingdom.  This  was  voted  down  by  103  to  79 
on  the  ground  that  it  was  unfair  to  pick  out  a  particular  com- 
pany in  connection  with  what  was  a  general  matter.* 

1  See  Report  of  the  Tariff  Commission  (Chamberlain),  1904,  Vol.  I :  The  Iron 
and  Steel  Industry,  under  heading  "  Preferential  Rates."  Contra,  see  "  British 
Railways  and  Goods  Traffic:  Is  Preference  given  to  Foreign  Products?"  (A. 
Dudley  Evans,  Economic  Journal,  March,  1905). 

2  Section  27  of  the  draft  Report  of  the  Select  Committee  of  1882,  p.  xxviii. 

3  The  practice  of  consigning  goods  on  through  rates  is  increasing.  At  the 
same  time  Continental  railways  -^  e.g.  those  of  Belgium  —  refuse  to  make  through 
rates,  except  with  railway  companies.  As  to  the  alleged  evil  effects  of  such 
arrangem(!nts,  see  remarks  of  Mr.  Planbury,  president  of  the  Board  of  Agricul- 
ture, Hansard,  1902,  fourth  series.  Vol.  108,  p.  1640.  See  also  Boyle  and  Wag- 
horn,  op.  cit.,  Vol.  I,  p.  .304. 

*  Lanca.shire  and  Yorkshire  Railway  Bill.  For  text  of  the  Instruction,  see 
Hansard,  1904,  fourth  series,  Vol.  131,  p.  1473. 


766 


1^\1I,^\  .\^•  ntoi'.i.iiMs 


The  farmois  of  the  I  iiiled  Ivino(h)iu  are  subject  to  competi- 
tion tVoin  many  points.  To  cite  but  a  few  examples:  Algerian 
fruit  and  \egetables,  French  hops,  Danish  butter  and  eggs, 
compete  with  the  home  products.  Tlie  hop  rates  complained 
of  when  President  Hadley  wrote  still  exist.  Not  only  do  the 
English  farmers  complain  of  preferential  rates,  there  is  also 
complaint  from  Ireland  that  the  existing  rate  basis  discriminates 
against  Irish  eggs,  butter,  and  bacon.  It  should  be  noted, 
although  such  a  consideration  is  iiiled  out  by  the  Railway  Com- 
mission, that  the  low  rates  complained  of  are  balances  of  through 
rates.  It  costs  about  £10  for  freight  charges  to  place  one  ton 
of  Algerian  fruit  or  vegetables  in  London.  In  fruit  shipments 
the  foreigners  have  had  the  advantage  that  a  considerable  num- 
ber of  the  British  growers  are  not  giving  sufficient  attention  to 
grading  and  packing  and,  in  general,  to  the  requirements  of 
consumers.  The  following  may  be  taken  as  examples  of  the 
complaints  in  regard  to  Danish  competition :  — 


Distance 
(mixed  route) 

Rate  per  Ton 

Butter 

Eggs 

Esbjerg  (Denmark)  to  Birmingham 
Armagh  (Ireland)      "            " 

553  miles 
358     " 

47s.  6d. 
42s.  6d. 

58s.  8d. 
50s. 

The  apparent  disparity  of  rates  on  a  distance  basis  disap- 
pears when  it  is  remembered  that  on  the  Danish  products  there 
is  a  long  water  haul,  and  that  there  is  also  the  difference  between 
a  car-lot  and  a  less  than  car-lot  basis.  The  Danish  rates  are 
quoted  on  minimum  consignments  of  ten  tons,  while  the  Irish 
rates  are  based  on  three  hundredweight. 

The  more  enlightened  English  farmers  recognize  the  effects 
of  water  competition.  They  know  that  it  would  not  benefit 
them  to  have  the  through  rate  raised,  as  it  would  simply  mean 
that  the  foreign  pi'oduce  would  move  more  cheaply  by  an  all 
water  route.  When  the  London  &  Southeastern  Railway  in 
1887  placed  foreign  ho[)s  on  the  same  rate  basis  as  domestic 
hops,  the  result  was  that  the  former  moved  by  water  to  London. 


ENGLISH  RAILWAY  COMMISSION"  767 

The  English  producer  was  injuriously  affected  by  the  increased 
competition  which  lowered  the  price.  At  present  approximately 
90  per  cent  of  the  Continental  produce  imported  by  way  of 
Boulogne  and  Calais  goes  by  water  to  London.  While  the 
farmers  recognize  the  superior  facilities  for  handling  foreign 
goods,  they  at  the  same  time  consider  that  the  disparity  between 
home  and  foreign  rates  is  too  great. ^ 

Some  part  of  the  complaint  in  regard  to  preferential  rates  is 
attributable  to  misunderstandings  in  regard  to  rate  conditions 
as  well  as  to  a  lack  of  initiative  on  the  part  of  the  farmers.  Tlie 
Royal  Commission  on  Agriculture  stated  in  1897  that,  while 
cooperation  among  farmers  was  necessary  in  order  to  obtain 
lower  rates,  this  matter  could  not  be  helped  on  by  legislation.^ 
But  little  has  been  done  by  the  farmers  to  accomplish  this.'^ 
While  there  is  much  unorganized  complaint  in  regard  to  agri- 
cultural rates,  the  farmers  are  presenting  very  little  evidence 
before  the  Departmental  Committee,  which  is  at  present  inves- 
tigating the  matter.  The  railways  have  been  more  willing  than 
the  farmers  to  cooperate.  For  forty  years  the  London  &  North- 
western has  been  collecting  small  consignments  of  agricultural 
produce  along  its  lines.  These  it  forwards  in  bulk,  delivers 
them  to  the  London  salesmen,  pays  market  dues,  collects  the 
proceeds  from  the  salesmen,  and  forwards  the  balance  to  the 
shippers.  The  London  &  Southwestern,  which  does  a  large 
business  in  package  freight,  undertook  recently  to  supply  the 
farmers  along  its  lines  with  copies  of  Pratt's  The  Organization 
of  Agriculture.  All  of  the  railways  have  been  active  in  giving 
special  rates  to  encourage  agricultural  shipments.*    But,  while 

1  E.g.  evidence  of  W.  W.  Berry,  a  prominent  hop  grower  of  Kent,  before  the 
Royal  Commis.sion  on  Agricultural  Depression,  1897,  answers  to  questions 
49,190,  49,226,  49,258.  See  also  statement  of  Mr.  Sinclair,  Hansard,  1904, 
fourth  series,  Vol.  136,  p.  295. 

2  Final  Report,  p.  529. 

3  See  statement  of  the  president  of  the  Board  of  Agriculture,  Hansard,  1902, 
fourth  series,  Vol.  108,  p.  1039. 

*  For  full  detail  concerning  tlic  special  arrangements  made  by  Briti.sh  rail- 
ways in  tins  regard,  .see  Railway  Rates  and  Facilities,  copy  of  correspondence 
between  the  Board  of  Agriculture  and  Fisheries  and  the  Railway  Companies  of 
Great  Britain,  etc.,  1904.    A  large  number  of  details  bearing  on  the  question  of 


768  KAII.\\.\^    iM;(ti'.i.i:Ms 

the  Haiu's  are  shipping  proihice  into  lOnyland  on  rehitivel}'  h)\v 
rates,  which  arc  ihe  icsult  of  coiiperation,  70  per  cent  of  the 
domestic  agrieultuial  shipments  on  the  Northeastern  Railway 
are  heh)\v  three  hundredweight,  and  90  per  cent  fall  below 
one  ton. 

Control  over  Actual  Rates 

In  dealing  with  the  rate  policy  of  the  Commission,  a  distinc- 
tion must  be  made  between  the  jjcriod  prior  to  1894  and  that 
subsequent  thereto.  Though  it  had  been  stated  in  1872  that 
legal  maximum  rates  afforded  but  little  real  protection  to  the 
public,^  the  system  was  continued  by  the  Act  of  1888.  While 
the  work  of  the  Board  of  Trade,  as  embodied  in  the  Provisional 
Orders  Acts,  meant  in  all  cases  the  systematization  and  in  many 
cases  the  reduction  of  the  maxima,  the  outcome  was  not  satis- 
factory to  the  traders,  some  of  whom  wanted  a  general  reduction 
of  rates,  regardless  of  tlie  cost  to  the  railways.  The  change  of 
status  in  regard  to  reasonable  rates  introduced  by  the  Act  of 
1888  was  more  apparent  than  real.  The  former  Railway  Com- 
mission had  stated  that,  in  addition  to  there  being  a  necessity 
that  rates  charged  should  be  within  the  maximum,  there  was 
also  the  added  requirement  that  they  must  be  reasonable.^  No 
legal  action  had  been  taken,  however,  in  regard  to  this  matter. 
Two  judicial  decisions  given  in  1883  and  in  1887  seemed  to 
uphold  the  position  that  a  maximum  rate  sanctioned  by  Parlia- 
ment was  conclusively  reasonable.^  But  the  statements  in  these 
decisions  are  simply  dicta,  since  the  question  of  reasonableness 
of  rates  was  not  directly  involved.  The  Act  of  1888,  however, 
settled  that  the  maximum  rate  was  conclusive  of  reasonableness.^ 

preferential  rates  will  be  found  in  Pratt's  Railways  and  Their  Rates.  This  book 
has  come  to  hand  since  the  material  contained  in  this  section  was  set  up. 

1  Report  of  the  .Joint  Select  Committee  on  liailway  Companies  Amalgamation, 
1872,  p.  xxxiv. 

2  Fourth  Report  of  the  liailway  Connnissioners,  p.  6,  Section  14. 

^  See  Manchester,  Sheffield  &  Lincolnshire  Co.  v.  Brown,  8  App.  Cas.  715,  and 
Great  Western  Railway  Co.  v.  McCarthy,  12  App.  Cas.  218.  In  the  latter  case 
Lord  Watson  took  the  position,  "  Prima  facie,  I  am  prepared  to  hold  that  a  rate 
sanctioned  by  the  legislature  must  be  taken  to  be  a  reasonable  rate." 

*  See  Act  of  1888,  Section  24,  Sub.section  0  and  Sub.section  10.  Report  of 
Board  of  Trade,  1890,  on  Classification  of  Merchandise  Traffic,  etc.,  p.  17. 


ENGLISH   RAILWAY  COMMISSION  769 

At  the  outset  of  its  work  the  only  way  in  which  the  Com- 
mission was  brought  in  touch  with  rates  was  through  the  pro- 
visions concerned  with  undue  preference  and  with  through  rates. 
The  Commission  will  not  state  beforehand  that  a  rate  is  prefer- 
ential.^ One  of  the  commissioners,  Sir  Frederick  Peel,  has  taken 
the  position  that  certain  powers  over  actual  rates  were  given  to 
the  Commission.  He  has  construed  the  statement  in  the  "  undue 
preference  "  clause  which  directs  the  commissioners  to  consider 
"  whether  the  inequality  cannot  be  remedied  without  unduly 
reducing  the  rate  charged  to  the  complainant"  to  give  a  power 
of  reducing  the  higher  rates.^  Concerning  this  interpretation 
there  is  some  doubt.  Justice  Wills  holds  that  the  words  in 
question  do  not  confer  any  rate-making  power,  but  simply  indi- 
cate the  circumstances  to  be  considered.'^  In  an  Irish  case  in 
1897,  in  which  the  question  of  distributive  rates  was  involved, 
it  was  held  that  the  rate  to  a  shorter  distance  point  should  be 
Sd.  per  ton  less  than  the  rate  to  the  longer  distance  point ;  but 
no  attempt  was  made  to  determine  the  longer  distance  rate.* 
In  1900  a  temporary  reduction  of  a  canal  toll  was  directed.^ 
However,  it  cannot  be  said  that  these  decisions  have  established 
the  power  of  the  Commission  to  reduce  rates  under  the  undue 
preference  clause.  Sir  Frederick  Peel  also  holds  that  the  Com- 
mission may  fix  a  through  rate,  no  matter  what  the  railways 
concerned  may  have  agreed  upon.  While  this  matter  has  not 
been  passed  on,  the  weight  of  opinion  is  against  such  an  inter- 
pretation.6  It  would  appear,  although  this  also  has  not  been 
passed  upon,  that  the  Commission  has  no  power  to  test  the 

1  In  re  Taff  Vale  Ry.  Co.,  11  Ry.  and  Canal  Traffic  Cases,  89. 

2  Note  his  dissenting  opinion  in  the  Liverpool  Corn  Traders'  Association  case 
in  1892. 

*  Select  Committee  on  Railway  Rates  and  Charges,  1893,  answer  to  question 
8268. 

*  Carrickfergus  Harbor  Commissioners  and  Others  v.  Belfast  Northern  Counties 
By.,  10  Ry.  and  Canal  Traffic  Cases,  74. 

6  Fairweather  &  Co.  and  Others  v.  Corporation  of  York,  11  Ry.  and  Canal 
Traffic  Cases,  201. 

*>  Evidence  before  Select  Committee  of  1893,  answers  to  questions  79(;8,  7904, 
7906.  See  also  the  extremely  guarded  statement  of  Justice  Wills  before  the  same 
committee,  answer  to  question  8204. 


770  KAii.ww    im;()1'.i,1':ms 

reiisonabloness  of  an  I'slaltlislicd  tliioui^h  rate.  While  tlio  Com- 
mission has  power  to  lix  a  througli  rate,  if  the  parties  do  not 
ai^ree,  it  wouUl  appear,  although  this  is  a  moot  point,  that  it 
has  no  power  to  ap])ortion  sueh  a  rate.^  The  Commission  stated 
explicitly  in  1895  that  it  had  no  power  under  the  Act  of  1888 
to  inquire  into  the  reasonableness  of  a  particular  rate.^  The 
various  reductions  of  rate  which  have  been  ordered  in  connec- 
tion with  the  workmen's  trains  applications  are  given  under  an 
entirely  different  jurisdiction."^ 

In  the  matter  of  group  rates  there  has  been  some  conflict 
between  the  English  and  the  Irish  decisions.  The  former  regard 
competition  and  convenience  as  the  most  important  factors.  The 
latter  lay  more  stress  on  distance.  The  appeals  from  the  Com- 
mission have  settled  that  competition  is  as  important  a  factor 
in  connection  with  rates  as  geographical  position. 

The  question  of  the  reasonableness  of  particular  rates  was 
suddenly  brought  before  the  Commission  in  1894,  The  adjust- 
ments necessary  in  putting  into  force  the  rates  under  the  revised 
maxima  were  great.  The  fact  that  fully  one  half  of  the  tral'lic 
is  carried  on  exceptional  rates,  which  are  below  the  class  rates, 
still  further  complicated  matters.*  At  the  same  time  there  was 
an  apparent  desire  on  the  part  of  some  of  the  railways  to  give 
the  traders  an  object  lesson  in  regard  to  the  disadvantages  of 
the  legislative  intervention  which  had  brought  some  maxima 
below  the  actual  rates  formerly  charged.  And  so  the  maximum 
class  rates  were  published  as  the  actual  rates  effective  January  1, 
1893.  The  outcry  which  followed  quickened  the  work  of  adjust- 
ment, and  led  to  an  undertaking  on  the  part  of  the  railways  that 
the  rate  increase  should  not  be  more  than  5  per  cent.    But  this 

1  Tliis  point  was  raised  in  the  Forth  Bridge  case,  11  Ry.  and  Canal  Traffic 
Cases,  T),  but  was  not  passed  upon. 

2  West  Ham  Corporation  v.  Great  Eastern  By.,  9  Ry.  and  Canal  Traffic 
Cases,  15. 

8  E.g.  In  re  London  Reform  Union  v.  Great  Eastern  Ry.,  10  Ry.  and  Canal 
Traffic  Cases,  280.    See  Ferguson,  Railway  Rights  and  Duties,  pp.  206,  207. 

*  For  detail  concerning  these  rates,  see  "  Report  on  the  Question  of  Slow 
Freights  (England),"  by  Henry  Smart,  Bulletin  of  the  International  Railway 
Congress,  July,  1904. 


ENGLISH  RAILWAY  COMMISSION  771 

did  not  prevent  the  enactment  of  a  piece  of  panic  legislation, 
passed  hurriedly  and  without  due  consideration.^  By  this  act 
it  was  provided  that,  where  rates  were  directly  or  indirectly 
increased  after  December  31,  1892,  they  were  prima  facie  un- 
reasonable. The  fact  that  the  rate  complained  of  was  within 
the  maximum  was  not  to  be  a  justification  of  the  increase.  The 
Commission  was  given  power  to  deal  with  complaints  arising 
under  this  act,  subject  to  the  provision  that  an  application  was 
first  to  be  made  to  the  Board  of  Trade.  Over  seventeen  hundred 
complaints  were  brought  before  the  Board  of  Trade  between  the 
date  of  the  passage  of  the  act  and  the  end  of  February,  1895. 

In  the  investigations  leading  up  to  the  Provisional  Orders 
legislation  the  traders  had  all  along  been  desirous  of  having  the 
actual  rates  serve  as  maxima.^  The  evident  intention  of  the 
majority  of  the  members  of  the  Select  Committee  of  1893  was 
that  the  rates  in  force  at  the  end  of  1892  should  be  the  maxima. 

In  taking  up  the  new  functions  imposed  by  the  revolutionary 
Act  of  1894,  the  Commission  had  a  full  appreciation  of  the 
difficulties  of .  the  new  jurisdiction.  Justice  Collins  said,  "I 
cannot  suppose  that  Parliament  intended  to  take  the  manage- 
ment of  these  great  trading  companies  [the  railways]  out  of  the 
hands  of  the  practical  men  who  work  them,  and  to  place  it  in 
the  hands  of  the  Railway  Commissioners."  The  Commission 
had  no  intention  to  exercise  a  rate-making  power.  It  was  its 
intention  to  construe  the  legislation  strictly.  In  the  interpre- 
tation of  the  statute  there  was,  however,  a  difference  of  opinion 
between  the  commissioners.  Lord  Cobham  held  that  the  Com- 
mission was  not  competent,  of  its  own  knowledge,  to  say  whether 
a  rate  was  reasonable  or  not.  "  No  tribunal,  however  expert, 
would  undertake  to  say  that  a  6s.  Qd.  rate  for  the  carriage  of 
coal  from  Derbyshire  to  London  is  reasonable,  but  that  6s.  9lri. 

1  A  mass  of  detail  pro  and  oon  will  be  found  in  the  evidence  attached  to  the 
Report  of  the  Select  Committee  of  18i).3.  See  also  Mavor,  "  The  English  Railway 
Rate  Question,"  Quarterly  Journal  of  Economics,  April,  1894  ;  Acworth,  The 
Elements  of  Railway  Economics,  pp.  147-154. 

^  E.g.  speech  of  J.  II.  Balfour  Browne,  already  cited,  p.  171.  Evidence  of 
Marshall  Stevens  before  the  Select  Comiiiitlee  of  180.3,  answers  to  questions  2448 
and  2518. 


(  ,'2  \i\\\.\\ \\   im;oi'.li:ms 

is  nmi'asitiiablo."'  The  legislature  had,  however,  given  a  stand- 
anl  of  reasonableness  in  the  rate  of  1892,  and  the  rate  could 
not  be  increased  above  this  unless  good  reasons  were  shown. ^ 
In  endeavoring  to  obtain  some  delinite  standard  of  measurement 
of  reasonableness,  the  Connnission  ruled  out  all  reference  to 
competition,  or  to  that  more  inclusive  system,  charging  what 
the  tratlic  will  bear.-  The  opinion  of  the  traders,  that  the  rates 
in  force  at  the  end  of  1892  should  be  maximum  rates,  received 
a  partial  support  from  Lord  Cobham,  who  held  that  the  fact 
that  a  rate  had  not  been  increased  })rior  to  1892  created  a  strong 
presumption  against  the  railway  because  it  had  not  increased 
the  rate  when  it  had  the  unchallenged  right  to  do  so  ;  ^  but 
Justice  Collins  held  that  conditions  prior  to  1892  could  be  con- 
sidered, and  that  the  reasonableness  of  a  rate  was  to  be  tested 
by  conditions  existing  or  apprehended  before  the  legislation 
came  into  force."^  Later  decisions  have  taken  into  consideration 
conditions  subsequent  to  1894.^  There  still  remained  the  ques- 
tion of  the  criterion  of  reasonableness.  Justice  Collins  held 
that  this  should  be  cost  of  service.  Reasonableness,  he  held, 
must  be  measured  by  reference  to  "  the  service  rendered  and 
the  benefit  received."  This,  in  his  opinion,  pointed  to  cost  of 
service  as  the  base,  because  "  the  service  rendered  and  the  bene- 
fit received  were  unaffected  by  the  prosperity  or  misfortune  of 
the  parties  to  the  contract."  *^  This  squared  with  the  views  of 
the  traders,  who  held  that  the  true  basis  of  a  rate  was  cost 
of  service."    Tlie  fact  that  the  legislation  provided,  in  the  first 

1  iJerhj  Silkstone  Coal  Co.,  Ltd.  v.  Midland  Ry.,  9  Ry.  and  Canal  Traffic 
Cases,  107. 

2  E.g.  Charlaw  and  Sacriston  Collieries  Co.  v.  Northeastern  By., .9  Ry.  and 
Canal  Traffic  Cases,  140.  In  Black  cfc  Sons  v.  Caledonian  By.,  etc.,  11  Ry.  and 
Canal  Traffic  Cases,  176,  the  Court  of  Sessions  refused,  on  appeal,  to  grant  the 
process  which  would  enable  the  railway  companies  to  investigate  the  books  of 
the  applicants  to  see  what  their  profits  had  been  during  a  given  period. 

3  Derby  Silkstone  Coal  Co.  case,  p.  180.  *  Ibid.,  p.  111. 
^  E.g.  Black  &  Sons,  ut  supra. 

6  Derby  Silkstone  case,  p.  118.  The  decision  in  this  regard  is  based  on  Canada 
Southern  Ry.  Co.  v.  International  Bridge  Co.,  8  App.  Cas.  7.31,  732. 

■^  E.g..  letter  of  Sir  James  Whitehead,  president  of  the  Mansion  House  Asso- 
ciation, London  Times,  December  22, 1892  ;  also  speech  of  J.  H.  Balfour  Browne, 
ut  supra,- p.  257. 


ENGLISH  RAILWAY  COMMISSION  773 

instance,  a  rate  of  an  antecedent  period  as  a  criterion  of  reason- 
ableness would  seem  to  show  an  intention  of  ruling  out  in  the 
present  rate  any  consideration  of  what  the  traffic  would  bear; 
for,  if  charging  what  the  traffic  would  bear,  in  the  present,  were 
admitted  as  a  present  criterion  of  reasonableness,  it  is  difficult 
to  see  how  the  past  rate  could  serve  as  a  standard  of  reason- 
ableness, when,  presumably,  what  the  traffic  would  bear  was 
something  essentially  different. 

The  increases  in  rates  complained  of,  which  have  for  the  most 
part  arisen  in  connection  with  coal  traffic,  have  in  a  number  of 
cases  been  indirect,  attributable  to  decreases  in  the  allowance 
made  for  wastage  in  the  coal  traffic,  etc.  The  criterion  the  Com- 
mission has  found  it  necessary  to  adhere  to  —  cost  of  service  — 
has  tied  it  down  to  an  arbitrary  arrangement.  To  meet  this  con- 
dition, the  railways  have  had  recourse  to  technicalities  savoring, 
in  some  instances,  of  subterfuge.  It  one  case  it  was  alleged  that 
the  increase  complained  of  was  attributable  to  an  increase  in  the 
cost  of  cartage  as  distinguished  from  conveyance  charges.  The 
former  fell  under  terminal  services,  over  which  the  jurisdiction 
of  the  Commission  was  limited. ^ 

No  general  principle  has  been  established  in  the  unreasonable- 
rate  cases.  The  railways  had  claimed  the  right  in  1893  to  in- 
crease the  rates  by  5  per  cent  as  compared  with  the  rates  in  force 
in  1892.  While  the  traders  never  recognized  the  validity  of  this 
claim,  the  Board  of  Trade  by  1898  had  accepted  this  arrange- 
ment as  justifiable.  The  important  Smith  &  Forrest  case,  which 
came  up  in  1899,  was  intended  to  test  this  arrangement.^  Com- 
plaint was  made  by  the  oil  refiners  of  Liverpool  and  Manchester 
that  an  increase  of  5  per  cent  was  unreasonable.  The  increase 
was  in  part  direct,  in  part  indirect,  attributable  to  decreases  in 
cartage  rebates.  The  matters  involved  were  pertinent  to  the 
whole  freight  traffic  of  the  United  Kingdom,  and  affected  future 

^  Mansion  House  Association,  etc.  v.  L.  cfc  N.  W.  Ry.,  9  Ry.  and  Canal  Traffic 
Cases,  174.  See  especially  the  remarks  of  Lord  Esher  in  the  appeal  proceedings, 
pp.  199,  200. 

2  Smith  <fc  Forrest  v.  L.  &  N.  W.  Ry.  and  Others,  11  Ry.  and  Canal  Traffic 
Cases,  156. 


<7  1  I^\lI.^\\^    immm'.i.kms 

as  well  as  past  ratos.  The  railways  introduced  statistical  evi- 
deiiee  showing  that,  because  of  various  increases  in  cost,  par- 
ticularly in  the  case  of  hdwr,  expenses  were  5.1  per  cent  higher 
in  lSi>i!  ihan  in  ISSS  and  6.3  per  cent  liigher  in  1898  than  in 
189l2.  'i'he  railways  desired  to  carry  the  comparisons  back  to 
1872,  wlien  many  of  the  old  rates  had  been  fixed;  but  the  Com- 
mission considered  1888  a  sufficiently  remote  date,  and  com- 
parisons were  made  with  the  conditions  of  1891.  It  was  found 
that  an  increase  of  3  per  cent  would  be  justilied.  The  Com- 
mission has  thus  shown  its  intention  to  look  at  each  case  by 
itself.  If  a  5  per  cent  increase  should  be  found  justifiable  in 
a  particular  case,  it  would  not  necessarily  have  any  bearing  on  a 
later  decision. 

The  desire  of  the  Commission  not  to  engage  in  any  rate-making 
experiments  has  kept  it  from  making  any  statements  as  to  gen- 
eral rates.  It  has  concerned  itself  with  the  reasonableness  of  par- 
ticular rates.  The  Commission  has  painstakingly  endeavored  to 
get  at  the  cost  involved.  The  decisions  have  been  compromises. 
Where  decisions  have  been  against  the  railways,  damages  have 
been  awarded  on  the  basis  of  the  difference  between  the  increase 
and  what  was  deemed  a  justifiable  increase ;  and  the  railways 
have  been  ordered  to  desist  charging  the  unreasonable  rates.  In 
a  recent  case  an  attempt  was  made  to  obtain  an  expansion  of  the 
unreasonable-rate  jurisdiction.^  It  was  contended  that  it  was 
unreasonable  to  increase  a  rate,  although  the  increased  rate  was 
still  below  the  point  to  which  it  had  been  decreased  in  1894. 
The  Commission  did  not,  however,  pass  upon  this  question.  It 
is  apparent  that,  if  such  a  contention  were  accepted,  still  more 
rigidity  would  be  introduced  into  the  system.  The  traders'  antici- 
pations as  to  the  effect  of  the  Act  of  1894  have  been  nullified 
by  the  willingness  of  the  Commission  to  consider  conditions  ante- 
cedent to  the  legislation.  The  whole  position,  it  must  be  recog- 
nized, is  an  exceedingly  artificial  one.  While  the  position  taken 
by  the  Commission  is  strained  and  unsatisfactory,  it  is  difficult  to 
see,  when  it  was  specifically  referred  back  to  the  conditions  of 

1  Millom  &  Askam  Hematite  Iron  Co.  v.  Furness  Ry.  and  Others,  reported  in 
Railway  Times,  January  21,  rJU3. 


ENGLISH  RAILWAY  COMMISSION  775 

1892,  what  other  method  it  could  have  adopted.  By  acting  as  it 
has,  a  degree  of  elasticity  has  been  retained  for  tl^e  process  under 
the  legislation  which  it  otherwise  would  not  have  possessed.^ 

It  was  objected  at  the  outset,  that  the  judicial  member  would 
dominate  the  Commission,  owing  to  the  difficulty  of  distinguish- 
ing between  law  and  fact.  It  has  happened,  however,  that  in 
the  performance  of  their  duties  the  lay  members  determine  on 
questions  of  fact.  At  the  same  time,  while  the  opinion  of  the 
ex-officio  commissioner  is  final  on  a  point  of  law,  the  lay  members 
also  form  and  express  their  opinions. 

The  government  has  throughout  considered  the  requirement 
that  one  member  of  the  Commission  shall  "  be  experienced  in 
railway  business  "  to  mean  that  he  shall  have  been  a  railway 
director  or  a  railway  manager.^  Exception  has  been  taken  to 
this  by  the  traders.  To  the  attempt  to  obtain  a  business  repre- 
sentative on  the  Commission,  in  addition  to  a  railway  represent- 
ative, the  railways  are  not  opposed.  It  is  from  the  government 
that  the  objection  has  come.  Mr.  Mundella,  when  president  of 
the  Board  of  Trade,  said  he  would  ])e  glad  to  appoint  a  "  really  " 
business  man  who  should  be  an  impartial  authority,  fairly  rep- 
resentative of  the  trading  class.  Mr.  Mundella  had  stated  that 
the  Commission  as  then  constituted  was  generally  unsatisfactory.'^ 
An  attempt  was  made  by  the  traders  in  1894  to  so  amend  the 
legislation  that  one  of  the  commissioners  should  be  "  experienced 
in  trade  or  commerce."  This  was  not  pressed  beyond  the  first 
reading.'*  Mr.  Bryce,  who  succeeded  jNIr.  Mundella,  held,  how- 
ever, that  no  such  restriction  as  his  predecessor  had  favored 

1  The  criticism  directed  against  the  Commission  by  Grinling,  in  British  Kail- 
ways  as  Business  Enterprises,  pp.  161-163,  contained  in  Ashley's  British  Indus- 
tries, is  not  wholly  justified. 

2  Mr.  Price,  before  his  appointment  to  the  Commission  of  1873,  had  been 
chairman  of  the  Midland  Railway.  Viscount  Cobham,  who  succeeded  Mr.  Price 
in  1891 ,  had  been  deputy  chairman  of  the  (ireat  Western.  On  Viscount  Cobham's 
resignation,  early  in  the  present  year,  he  was  succeeded  by  Mr.  Gathorne-llardy, 
who  had  been  deputy  chairman  of  the  Southeastern. 

3  Hansard,  1894,  fourth  series,  Vol.  28,  pp.  792,  793. 

*  The  text  of  this  bill  will  be  found  in  the  Railway  Times,  June  16,  1894, 
p.  782,    See  also  Report  of  the  Select  Committee  of  1893,  p.  xiii. 


770  1^\1L^^.\^■  imjoi'.i-kms 

should  be  placed  on  tlu'  choici'  i)f  the  government.  The  desire 
to  h;ive  a  loiuiiioivial  representative  is  still  active.  Believing 
that  ihe  eonnnissioners  should  be  assessors,  possessed  of  expert 
kno\\  ledge,  rallier  than  judges,  tlie  traders  have  urged  that  the 
terms  ol"  the  eonnnissioners  sliould  not  exceed  ten  years,  so  that 
tliere  might  be  an  opportunity  to  keep  constantly  in  touch  with 
arlual  conditions. 

Looking  at  conditions  as  they  are,  it  is  apparent  that  the  pres- 
ence of  a  railway  representative  on  the  Conunission  has  meant 
that  those  appearing  before  it  have  been  more  careful  to  give 
essential  details.  There  is  no  real  cause  for  ccMuplaint,  from  the 
traders'  standpoint,  concerning  the  services  which  the  lay  mem- 
bers have  performed.  The  railway  representative,  for  example, 
in  the  enforcement  of  the  legislation  of  1894  has  followed  very 
closely  the  ideas  favored  by  the  traders.  Sir  Fiederick  Peel 
has  l)een  willing  to  give  a  broad  construction  to  the  legislative 
provisions  concerned  with  control  of  rates. 

The  average  English  trader  asks  for  a  process  which  shall  be 
"  short,  sharp,  and  decisive."  And  to  him  the  process  of  the  Com- 
mission has  undoubtedly  been  unsatisfactory.  As  a  minimum, 
six  weeks  elapse  between  the  tiling  of  the  application  and  the 
decision  of  the  case.^  In  a  number  of  cases  more  than  a  year 
has  elapsed  between  the  initial  hearing  and  the  decision.  In 
some  cases  the  delays  are  attributable  to  adjournments  in  order 
to  permit  the  obtaining  of  more  evidence.^  In  other  cases  delays 
have  been  caused  by  an  endeavor  to  get  the  parties  to  settle  the 
questions  in  dispute.  When  cases  are  appealed,  there  are  further 
delays.  While  one  case  has  been  decided  on  appeal  within  two 
months  after  the  decision  of  the  Commission,  the  usual  period 
is  from  six  months  to  one  year. 

Notwithstanding  the  assumption  in  1887,  that  giving  a  locus 
standi  to  governing  bodies  and  to  traders'  associations  would 
cause  much  litigation,  the  number  of  complaints  is  not  great. 

1  The  Rules  of  Procedure  of  the  Commission  allow  twenty-one  days  after  the 
filing  of  the  application  for  the  filing  of  replies. 

2  E.g.  the  important  case  of  Spiller.s  &  Bakers,  etc.,  was  heard  first  Decem- 
ber 0  and  10,  1903.  It  was  then  adjourned  for  further  evidence,  and  was  decided 
in  July,  1904. 


ENGLISH  RAILWAY  COMMISSION  777 

In  the  period  1889-1903  there  have  been,  on  the  average,  fifty 
applications  a  year ;  but  many  of  these  have  been  of  minor  im- 
portance. In  the  same  period  there  have  been  on  the  average 
twenty-three  decisions  a  year.  But  here  there  are  many  cases 
where  one  decision  covers  a  group  of  identical  cases.^  Com- 
plaint has  been  made  of  the  small  number  of  days  on  which  the 
Commission  sits.  In  the  nine  years,  1896—1904,  the  average 
period  the  Commission  has  sat  annually  as  a  court  is  thirty-two 
days.  This,  it  is  true,  is  exclusive  of  the  days  when  the  Com- 
mission has  sat  to  consider  applications  for  sanctioning  working 
agreements  between  railways,  the  time  taken  up  in  connection 
with  the  administrative  duties  of  the  Commission,  and  the  days 
on  which  the  registrar  of  the  Commission  has  inquired  into 
damages  and  interlocutory  proceedings  which  would  otherwise 
come  before  the  commissioners  acting  as  a  court.  Of  these  no 
record  is  kept;  but,  after  making  all  allowance,  it  is  apparent 
that  the  Commission  is  not  overworked.  It  is  apparent,  how- 
ever, as  has  been  recognized  by  the  traders  themselves,  that  the 
mere  enumeration  of  the  number  of  days  on  which  the  Com- 
mission has  sat  is  no  criterion  of  its  usefulness.^ 

The  Commission  is  criticised  on  account  of  its  expense.  This 
criticism  is,  however,  directed  only  to  a  slight  extent  against  its 
cost  of  maintenance.^  It  is  the  expense  of  obtaining  a  decision 
that  the  critics  have  in  mind.  In  recommending  a  limitation  of 
the  right  of  appeal,  the  committee  of  1882  intended  to  limit  ex- 
pense. By  providing  for  the  intervention  of  the  Board  of  Trade 
in  various  matters,  the  legislation  of  1888  hoped  that  the  expense 
of  proceedings  might  be  kept  down.  The  attempt  of  the  legis- 
lation of  1891  to  lessen  expense,  by  providing  that  costs  should 
not  be  granted  by  the  Commission,  except  in  cases  where  the 
claim  or  the  defense  is  frivolous  or  vexatious,  was  intended  to 
oljviate  the  burden  of  the  fees  of  the  railway  lawyers  falling 

'^  See  Table  I,  on  p.  793. 

2  In  this  connection  see  the  statement  of  Sir  B.  Samuelson,  who  was  vei-y 
active,  on  the  traders'  side,  in  the  steps  leading  up  to  the  legislation  of  1888. 
Hansard,  1883,  third  series,  Vol.  278,  p.  1887. 

3  In  1903  the  cost  of  maintenance  of  the  Commission  amounted  to  £6497. 


77S  KAii.w  A\    rijor.LKMs 

on  llu'  IratK'r,  wlifii  iK'Tratrd  in  a  case*.  The  admittedly  lii^h 
expenses  luv  not  attribntal)le  to  tlit;  fees  of  the  C'onnuissioii, 
whieh  are  moderate,'  but  tt)  tlie  deveh)pnient  of  a  teehnically 
equipped  Railway  Commission  liar.  It  was  early  seen  that  the 
necessary  prominence  of  the  lawyers  employed  Avould  make  the 
process  relatively  expensive.  The  same  conditions  existed  in 
eonnection  with  the  Connnission  of  1873.  In  the  body  of  law- 
yer found,  practicing  before  the  Commission  are  many  whose 
names  are  prominent  in  the  Parliamentary  bar,  —  a  practice 
whose  fees  are  high.  The  legal  work  before  the  Commission 
has  tended  to  fall  into  the  hands  of  a  relatively  small  number 
of  practitioners.^  Prior  to  1894  it  was  the  practice  to  allow 
costs  for  two  lawyers,  unless  when  some  especially  technical 
matter  was  involved.^  Since  1894  there  have  been,  on  the 
average,  two  lawyers  on  each  side  in  the  traders'  cases.  Under 
these  conditions  the  expense,  in  a  case  contested  before  the  Com- 
mission, runs  from  X150  to  <£200  a  day.  The  individual  trader 
is  able  to  lessen  his  expense  where,  as  in  the  sidings'  rent  cases, 
a  group  of  traders  bring  action  on  a  common  set  of  facts.  Only 
in  one  case  has  a  rate  matter  been  presented  before  the  Com- 
mission by  the  complainant  himself ;  and  he  was  unsuccessful. 
The  judicial  meml)ers  of  the  Commission  are  opposed  to  the 
complainants  appearing  in  person.  While  it  is  true  that  in  one 
case,  which  w'as  settled  before  trial,  the  total  court  costs  to  the 
complainant  were  £1;  and  these,  with  his  other  expenses,  were 
reimbursed  to  him  by  the  railway,  it  is  apparent  that  those  who 

1  See  Railway  and  Canal  Commission  Procedure,  Schedule  III,  Woodfall, 
op.  cit.  See  also  Senate  Committee  on  Interstate  Commerce,  ut  supra,  Vol.  V, 
Appendix  B,  p.  220.  The  Commission  fees  in  rate  cases,  as  a  maximum,  do  not 
exceed  £o. 

2  In  the  58  traders'  cases  covered  by  the  reported  decisions  down  to  1002, 
68  lawyers  took  part.  Mr.  J.  H.  Balfour  Browne,  K.C.,  who  is  the  dean  of  the 
traders'  legal  forces,  appeared  in  41  cases  ;  Mr.  C.  A.  Cripps,  in  .30  ;  Mr.  E.  Moon, 
in  .31.  In  all  there  were  32  lawyers  who  appeared  in  more  than  three  cases.  Eight 
of  these  appeared  in  more  than  ten  cases  each.  The  leaders  have  not  practiced 
exclusively  on  one  side.  For  example,  Mr.  C.  A.  Cripps,  who  has  appeared  in 
30  cases  for  the  railways,  has  appeared  in  0  cases  on  the  traders'  side. 

3  The  registrar  is  the  taxing  officer  of  the  Commission.  See  appeal  from  his 
decision  in  this  connection  in  Glamorganshire  County  Council  v.  Great  Western 
By.,  9  Ry.  and  Canal  Traffic  Cases,  1. 


ENGLISH  RAILWAY  COMMISSION  779 

are  aggrieved  in  small  matters  cannot  afford  to  come  before  the 
Commission.^  There  have  not  been  the  migratory  sessions  of 
the  Commission  which  the  traders  favor.  The  sessions  are  held 
in  the  capital  cities  of  the  countries  concerned.  It  is  cheaper  to 
have  the  cases  taken  to  the  technically  equipped  lawyers  in  the 
capital  cities  than  to  have  these  come  to  the  cases  in  local  cen- 
ters. If  the  case  involves  any  matter  of  considerable  moment, 
the  contest  has  to  be  carried  on  against  the  Railway  Association. 
This  being  so,  the  complaints  have  to  be  fought  out  by  firms, 
groups  of  traders,  trade  associations,  Chambers  of  Commerce, 
local  governing  bodies.^  The  cost  of  a  suit  before  the  Com- 
mission is,  under  these  conditions,  about  the  same  as  before 
any  other  high  court.^ 

In  view  of  the  expense  attaching  to  suits  before  the  Commis- 
sion, it  has  been  urged  that  the  power  possessed  by  the  Board 
of  Trade  under  the  Act  of  1873  to  institute  proceedings  before 
the  Railway  Commission  should  be  utilized.  While  the  railways 
would  not  object  to  the  Board  of  Trade  presenting  before  the 
Commission  matters  arising  under  the  conciliation  procedure  of 
the  Board,  where  its  decisions  have  not  been  accepted  by  the 
railways,  it  has  been  held  that  this  would  interfere  with  the 
efficiency  of  the  conciliation  clause.  The  government  has  held 
that  to  make  a  government  department  public  prosecutor  in 
cases  before  the  Railway  Commission  would  savor  rather  of  per- 
secution than  of  prosecution.^  One  exception  has  been  made  to 
this  general  rule.  In  1899  the  Irish  Department  of  Agricul- 
ture was  empowered  in  its  act  of  organization  to  present  rate 
grievances  before  the  Commission  at  the  public  expense.    So  far 

1  See  evidence  of  T.  Middleton  before  the  Royal  Commission  on  Agricultural 
Depression,  1897,  answer  to  question  2361. 

2  One  of  the  most  interesting  trade  associations  is  the  Mansion  House  Associ- 
ation, founded  in  1880.  It  represented,  before  the  Board  of  Trade  in  1889-181)0, 
209  public  and  local  autliorities,  174  commercial  and  agricultural  organizations, 
besides  a  large  numl)er  of  individuals. 

^  While  the  limitation  of  appeal  reduces  the  expense,  the  powers  of  the  Court 
of  Appeal  to  grant  costs  in  Commission  cases  is  not  affected  by  the  legislation 
of  1894. 

*  Hansard,  1883,  third  series,  Vol.  278,  p  1901,  statement  of  Honorable  Joseph 
Chamberlain. 


7S0  KAII.W.W    PKOr.LKMS 

tliovo  lias  bemi  ou\y  (mo  sucli  case,  in  100'2.  In  this  the  Board 
of  Agriculture  was  succcssl'ul. 

The  Associated  Chambers  of  Commerce  urged  in  March,  1004, 
that,  with  a  view  to  cheapness  and  expedition,  the  local  county 
courts  should  be  used  in  cases  between  the  railways  and  the 
traders.  This  suggestion  is  especially  intended  to  cover  the  case 
of  the  small  trader.  In  one  form  or  another  it  has  been  under 
discussion  since  the  early  nineties.  Cases  affecting  railwa^^s 
already  come  before  the  county  couits  from  time  to  time.^  While 
the  county  court  method  of  procedure  might  work  fairly  well 
in  local  matters,  it  is  apparent  that  this  procedure  is  unfitted 
for  matters  of  more  general  interest.  There  would  also  be  a 
defect  in  that  the  way  is  open  for  a  lack  of  expedition.  Appeals 
may  be  taken  on  points  of  law  or  equity  from  the  decisions  of 
the  county  court.  In  the  consideration  of  these  appeals  the  high 
courts  are  empowered  to  draw  inferences  of  facts.  Exceedingly 
small  matters  are  appealed  at  present.  In  1904  one  appeal 
was  concerned  with  an  alleged  overcharge  of  ll^d.  on  a  rail- 
way journey.^  It  has  been  suggested,  however,  that  the  cost  of 
appeals  under  the  proposed  jurisdiction  should,  where  the  appeal 
is  by  a  railway,  be  borne  by  the  railway.^ 

When  the  Act  of  1894  was  under  discussion,  it  was  claimed 
that  the  legislation  was  defective,  in  that  it  had  not  restored  the 
right  possessed  prior  to  1888  to  challenge  the  reasonableness  of 
all  rates.  To  the  proposition  to  confer  rate-making  power  on 
the  Commission  the  government  was  strongly  opposed.  It  con- 
sidered that  "to  ask  the  Railway  Commission,  or  any  tribunal, 
to  consider  what  is  a  reasonable  rate  would  be  to  give  them  no 
firm  ground  on  which  they  could  stand."  '*  Back  of  all  the  criti- 
cism directed  by  the  trader  against  the  Commission  there  is  in 

1  E.g.  cases  arising  under  Section  5  of  the  Eailway  Rates  and  Charges  Act 
of  1891.  This  section  is  concerned  with  special  charges  that  may  be  made  by 
railways  for  special  services. 

2  Ashton  V.  Lane.  &  Yorkshire  Rij.,  2  K.  B.,  1904,  313. 

3  Waghorn  and  Stevens,  op.  cit.,  p.  65. 

*  Statement  of  Honorable  James  Bryce,  president  of  the  Board  of  Trade,  in 
an  interview  with  the  deputation  on  railway  rates  and  charges,  June  15,  1894, 
Railway  Times,  June  23,  1894. 


ENGLISH  RAILWAY  COMMISSION  781 

reality  a  desire  that  the  rate-making  power  should  be  exercised. 
But,  while  the  desire  exists,  there  is  a  lack  of  unanimity  as  to 
the  means  to  use  to  accomplish  this.  In  this  uncertainty  some 
are  looking  to  the  Board  of  Trade. 

The  Board  of  Trade  was  given  jurisdiction,  under  the  Act  of 
1888,  to  deal  with  rate  grievances  through  a  conciliation  process 
modeled  on  that  contained  in  the  Act  to  Regulate  Commerce. 
It  is  also  empowered  to  attempt  to  settle  complaints  about  un- 
reasonable rates.  The  operation  of  the  Board  of  Trade  under 
its  conciHation  jurisdiction  is  recognized  as  having  met  with  a 
considerable  degree  of  success.^  Agreements  have  been  obtained 
in  about  one  third  of  the  cases  brought  before  it.  By  the  ex- 
planations it  obtains  from  the  railways  the  board  is  also  able 
to  settle  incipient  rate  grievances.  The  process  is  simple  and 
inexpensive.  When  a  complaint  is  made,  the  railway  is  commu- 
nicated with,  so  that  a  statement  of  its  position  may  be  obtained. 
If  the  matter  cannot  be  settled  by  correspondence,  an  attempt 
is  made  to  arrange  a  meeting  at  the  Board  of  Trade  between  the 
complainant  and  a  railway  representative.  Here  the  matter  is 
taken  up  in  an  informal  manner.  Isolated  cases  have  dragged 
on  a  year  without  a  decision,  but  normally  some  settlement 
is  obtained  much  more  promptly.  Complaints  varying  from  an 
overcharge  of  2d.  on  a  lawn  mower  to  questions  concerned  with 
preferential  rates  come  before  the  board.  In  1900  it  was  able  to 
obtain  a  reduction  in  distributive  rates  affecting  five  hundred 
towns  in  England  and  in  Ireland.  Since  1888  over  eleven  hun- 
dred cases  have  been  brought  before  the  board.^  Approximately 
one  half  of  these  were  presented  in  the  period  1899-1903.  The 
table  on  the  following  page  shows  the  result  of  the  more  impor- 
tant applications. 

There  were,  then,  under  these  headings  satisfactory  agree- 
ments in  about  one  fifth  of  the  applications  made. 

1  This  is  admitted  by  so  stronjr  an  advocate  of  the  rate-making  power  as 
Mr.  W.  A.  Hunter.  See  an  article  of  his  "Railway  Rates  and  the  Common 
Weal,"  Neio  Review,  Vol.  VIII,  p.  341. 

2  Thi.s  is  exclusive  of  over  1000  unreasonable-rate  complaints  dealt  with  by 
a  special  official  prior  to  1899. 


7S2 


KAii.w  AV  riior.i.KMs 


ritiNcirAi.  Arri.UATioNs,  i,s;t!)-l'.HK! 


Skvknth  Report 


Settled 


Unsuc- 
cessful 


Eighth  Repokt 


Settled 


Unbuc- 

cessful 


Classiticatiou 

Delays  in  conveyances,  facilities,  etc. 
Facilities  aiul  tdlls  on  canals    . 

Kates,  ditTerenlial 

Hates,  preferential 

Hates,  thron.uh  rates  obtained 
Hates,  through  rates,  reduction  of    . 
Kates,  unreasonable,  reduction  of    . 

Kebate,  cartage 

Kebate,  station  terminals    .     .     .     . 


4 
15 

2 
9 


9 

l/i 

4 

18 


18 
3 


12 
6 

10 

4 

1 

29 

2 


While  the  conciliation  work  of  the  Board  of  Trade  has  met 
with  a  fair  degree  of  success  in  smaller  matters,  it  has  failed  when 
larger  matters  have  had  to  be  dealt  with.  In  Pidcock's  case, 
which  later  came  to  the  Railway  Commission,  there  was  involved 
the  right  of  the  complainant  to  receive  rebates  in  respect  of  ter- 
minal services  not  performed  at  his  sidings.  The  matter  dragged 
on  for  seventeen  months,  and  finally  the  railways  stated  they 
would  take  the  matter  to  the  Commission,  although  in  the  opin- 
ion of  the  Board  of  Trade  the  "  matter  was  of  no  such  intricacy 
or  difficulty  as  to  make  the  arbitrament  of  a  more  elaborate  tri- 
bunal essential  to  a  just  decision."  ^  The  railways  will  not  rec- 
ognize the  conciliation  procedure  in  any  matter  which  involves 
legal  right.  With  a  view  to  simplifying  procedure  the  Act  of 
1888  provides  that,  when  a  trader  desires  to  obtain  a  through 
rate,  a  preliminary  hearing  before  the  Board  of  Trade  is  neces- 
sary. However,  since  the  determination  of  the  board  on  such  a 
matter  has  no  legal  effect,  the  preliminary  hearing  has  become 
simply  a  perfunctory  matter.  The  Board  of  Trade  is  unwilling  to 
express  an  opinion  ;  while  the  railways  are  unwilling  to  take  any 
position  that  may  be  used  against  them  before  the  Commission. 

When  the  rate  increases  of  1893  were  under  discussion,  the 
Mansion  House  Association  proposed,  on  behalf  of  the  traders, 

1  Fourth  Report  of  the  Board  of  Trade  of  Proceedings  under  Section  31  of  the 
Hallway  and  Canal  Traffic  Act,  1888,  p.  6. 


ENGLISH  RAILWAY  COMMISSION  783 

to  accept  the  decision  of  the  Board  of  Trade  on  these  rates  if 
the  railways  would  also  pledge  themselves  to  accept  the  decision. 
But  to  this  the  railways  would  not  agree.  To  the  attempt  to 
give  the  Board  of  Trade  power  over  rates  the  railways  are 
strongly  opposed.  This  position  is  also  supported  by  the  Board 
of  Trade  itself.  It  has  constantly  claimed  that  the  strength  of 
the  conciliation  procedure  of  the  board  is  wholly  attributable  to 
lack  of  compelling  power.  It  is  averse  to  any  increased  juris- 
diction over  rates  being  conferred  upon  it.  It  also  believes  that, 
if  a  new  rate  tribunal  is  organized,  it  should,  while  equipped 
with  a  commanding  personnel,  be  of  the  "  advisory  "  type. 

Table  I  ^  indicates  that,  from  the  traders'  standpoint,  the  most 
important  matters  brought  before  the  Commission  are  sidings' 
rent  charges,  preference,  unreasonable  rates,  charges  for  services 
at  sidings,  and  reasonable  facilities.  Attention  has  already  been 
directed  to  the  importance  of  sidings'  traffic  in  British  railway 
working.  For  many  years  the  small  traders  engaged  in  retailing 
coal  had  been  using  the  trucks  as  storage  warehouses.  The  rail- 
ways objected  to  their  sidings  being  crowded  with  loaded  trucks. 
The  colliery  owners,  to  whom  the  rolling  stock  belonged,  also 
objected.  Formerly  the  railways  had  charged  demurrage  charges 
based  on  the  average  time  a  truck  was  detained  on  a  sidinar.  In 
1895  the  railways  decided  to  charge  demurrage  based  on  the 
actual  time  a  truck  was  detained  on  a  siding  over  and  above  the 
time  necessary  to  unload  it.  Since  1895  many  applications  deal- 
ing with  this  arrangement  have  been  brought  before  the  Com- 
mission. Some  have  come  up  under  the  heading  of  legality  of 
rates,  others  under  the  heading  of  unreasonable  rates.  The  com- 
plaints in  regard  to  charges  for  services  at  sidings  are  attributa- 
ble to  the  fact,  already  sufficiently  explained,  that  in  the  English 
railway  system  there  are  various  special  charges  over  and  above 
the  conveyance  rate.  As  is  indicated  in  Table  I,  779  applica- 
tions have  been  made  to  the  Commission. 

The  preventive  effect  of  the  Commission  is  in  part  measured 
by  the  details  given  in  Table  II.^    A  special  example  will  make 

1  r.  793,  infra.  2  P.  793,  infra. 


7S1  l;All,\\.\^•  I'Kor.iJiMs 

the  pvi'vontivo  olToct  clearer.  In  1002  some  forty-seven  cases, 
wliieh  were  brouj^hl  before  tlie  Coinniission  alleging  that  the 
MitUand  liailway  was  unduly  preferring  a  prominent  colliery, 
sueh  favor  being  lo  the  detriment  of  the  complainants,  were 
settled  before  trial.  In  all,  219  cases  liave  been  settled  or  with- 
drawn. Formal  aetion  has  been  taken  in  34G  applications,^ 
leaving  approximately  one  third  of  the  applications  concerning 
whieh  there  is  no  further  record. 

There  has  been  only  three  cases  in  the  history  of  the  Com- 
mission in  which  anything  savoring  of  a  secret  rebate  has  been 
brought  before  it.  The  work  of  the  Commission,  in  so  far  as 
rates  are  concerned,  has  been  almost  entirely  concerned  with 
freight  traffic.  The  Act  of  1888  makes  no  direct  provision  for 
action  in  regard  to  passenger  rates.  It  has,  however,  been  settled 
in  decisions  arising  out  of  the  Commission's  action  that  it  has, 
as  an  incident  of  a  through-rate  arrangement,  power  to  order 
through  booking  (ticketing)  of  passengers.  It  has  also  power  to 
deal  with  passenger  facilities  under  the  question  of  "  reasonable 
facilities."  Of  the  rate  cases  formerly  argued  before  the  Com- 
mission the  traders  have  won  not  far  from  three  fifths.  The 
tendency  of  the  Commission  has  been  to  give  compromise  deci- 
sions. Not  only  have  there  been  compromises  as  between  the 
contending  parties,  there  have  been  compromises  as  between  the 
opinions  of  the  commissioners  themselves.  In  the  Rickett,  Smith 
case,  in  which  the  point  involved  was  an  increase  in  rates.  Jus- 
tice Collins  thought  all  the  increase  was  justifiable,  Lord  Cobham 
thought  none  of  the  increase  was  justifiable,  Sir  Frederick  Peel 
occupied  an  intermediate  position,  and  his  opinion  prevailed. 
Both  in  the  traders'  cases  and  in  the  cases  between  railways  the 
Commission  has  been  attempting  to  have  the  parties  arrive  at 
satisfactory  settlements,  without  final  action  on  its  part.  In 
some  cases,  when  the  parties  have  agreed,  the  Commission,  in 
accepting  the  agreement,  has  incorporated  it  in  its  final  order. 

1  This  includes  a  large  number  of  group  decisions  ;  i.e.  where  one  decision 
covers  identical  facts  in  a  set  of  cases,  consent  decisions,  cases  where  a  settle- 
ment arrived  at  by  the  parties  is  embodied  in  an  order  of  the  Commission, 
dismissal  of  applications,  etc. 


EXGLISH   RAILWAY  COMMISSION  785 

The  presence  of  a  judge  on  the  Commission  has  meant  a  strict 
constructionist  point  of  view  in  regard  to  the  law.  In  general, 
powers  have  not  been  implied.  Early  in  the  history  of  the  Com- 
mission Justice  Wills  said  nothing  could  be  more  mischievous 
than  to  strain  legislation  to  cover  facts  that  had  been  left  out  of 
it.  In  1892  the  same  judge,  in  speaking  of  a  statute,  said,  "  The 
legislature  had  reasons  of  its  own,  good,  bad,  or  indifferent, 
which  have  nothing  to  do  with  me."  In  one  case,  however, 
where  a  railway  had  closed  a  branch  railwa}',  and  pulled  down 
the  railway  station,  the  Commission  required,  with  much  hesita- 
tion on  the  part  of  the  judicial  member,  that  the  railway  should 
give  the  reasonable  facilities  asked  for;  and  this  of  necessity 
involved  the  rebuilding  of  the  railway  station.  This  implication 
from  the  law  of  1854  was  j)romptly  overruled. ^ 

Undoubtedly  the  presence  of  a  judge  on  the  Commission  has 
made  the  relations  with  the  higher  courts  more  harmonious  than 
was  the  case  with  the  Commission  of  1873.  There  has  not  been 
that  tendency,  so  conspicuous  in  the  relations  of  the  Federal 
courts  to  the  Interstate  Commerce  Commission,  to  regard  the 
Commission  as  an  amorphous  interloper.  In  one  case,  it  is  true, 
the  Scotch  Court  of  Sessions  claimed  that,  if  a  decision  as  to  fact 
depended  upon  a  conclusion  in  law,  then  there  could  be  an  appeal. 
This  line  of  argument,  which,  if  followed,  would  soon  undermine 
the  finality  of  the  Commission's  decisions  on  questions  of  fact, 
has  not  been  adopted ;  and  there  has  been  a  ready  recognition 
by  the  courts  of  the  finality  of  the  Commission's  decisions  on 
questions  of  fact.  The  result  of  this  is  seen  in  the  attitude  of 
the  courts  to  the  decisions  of  the  Commission.  Down  to  1904 
there  have  been,  as  is  indicated  in  Table  III,  thirty-eight  appeals. 
The  Commission  has  been  overruled  in  four  cases,  while  in  two 
others  it  has  been  sustained  in  part  and  reversed  in  part.  The 
decisions  of  the  Commission  in  the  traders'  cases  have  more 
finality  than  in  the  cases  between  railways.  While  nine  tenths 
of  the  applications  before  the  Commission  have  been  concerned 
with  traders'  rights,  there  have  been  only  eighteen  appeals  in 

1  Darlaston  Local  Board  v.  L.  &  N.  W.  Ry.,  8  Ry.  and  Canal  Traffic  Cases, 
21G. 


786  IJ.MLWAV    IMKM'.LKMS 

the  trailers'  cases ;  ■while  there  have  been  fifteen  appeals  in  cases 
whore  railways  alone  or  railways  and  dock  companies  have  been 
concerned. 

From  the  standpoint  of  the  trader  a  question  of  importance  is 
the  willingness  of  the  railway  to  obey  the  orders  of  the  Commis- 
sion without  fighting  the  matter  to  the  last  ditch.  While,  on 
the  whole,  the  railways  have  been  loyal  to  the  decisions  of  the 
Commission,  exam})les  may  be  found  on'  both  sides.  In  1902  the 
railway  reconsidered  its  first  intention  to  appeal  the  Charrington, 
Sells  case.  The  result  was  that  a  large  number  of  cases,  in 
W'hich  the  same  set  of  facts  was  involved,  were  settled  out  of 
court.  The  London  &  Northwestern,  as  a  result  of  the  decision 
in  the  first  Corn  Traders'  case,  gave  up  the  attempt  to  compete 
for  the  trafTic  with  which  the  case  was  concerned,  and  readjusted 
its  rates  accordingly.  On  the  otlier  hand,  it  was  necessary,  in 
the  case  Avhich  the  Mansion  House  Association  won  from  the 
same  railway  in  1896,  to  have  supplementary  proceedings  before 
the  Commission  in  1897  before  the  cessation  of  some  of  the 
rates  complained  of  was  obtained.  The  involved  uncertainties  of 
English  railway  law  have  also  played  their  part.  The  railways 
have  been  able,  acting  within  the  law,  but  depending  upon  legal, 
not  commercial,  conditions,  to  modify  the  redress  given  by  the 
Commission.  In  1 889  a  decision,  under  the  undue-preference 
clause,  found  that  existing  rates  were  interfering  with  the  dis- 
tributive business  of  the  Irish  town  of  Newry.  Two  years  later 
complaint  was  made  because  one  of  the  rates  complained  of  had 
been  raised.  The  railway  successfully  justified  this,  on  the 
ground  that  the  section  of  road,  on  which  there  was  an  increase 
of  rate,  was  expensive  to  work  on  account  of  cost  of  gradients, 
etc.  In  1900  the  firm  of  Cowan  &  Sons,  paper  manufacturers, 
failed  in  an  application  to  the  Commission  for  a  rebate  on  sidings' 
charges.  In  retaliation  for  this  application  the  railway  company, 
which  for  twenty-eight  years  had  delivered  coal  at  the  private 
siding  of  the  firm  in  question,  refused  any  longer  to  deliver  coal 
at  the  siding.  While  the  railway  was  at  the  same  time  deliver- 
ing coal  at  the  sidings  of  adjacent  competing  firms,  it  delivered 
the  coal  for  the  Cowans  at  a  near-by  station,  and  they  had  to 


ENGLISH  EAILWAY  COMMISSION  787 

haul  it  hack  to  their  siding.  The  decision  of  the  Commission  in 
favor  of  the  Cowans  was  overruled.  It  was  held  that  the  arrange- 
ment between  the  railway  and  the  trader  in  this  case  was  a  purely 
voluntary  arrangement,  creating  no  prescriptive  rights  against 
the  railway.  It  was  not  till  1904  that  legislation,  bringing  such 
sidings  within  the  facilities  clause  of  the  Act  of  1854,  and  thus 
supporting  the  Commission's  decision,  was  passed. 

The  Commission,  whenever  there  is  an  identity  of  facts,  —  e.g., 
in  many  of  the  sidings'  rent  cases,  —  has  dealt  with  cases  in 
groups,  giving  a  decision  which  covers  a  set  of  cases.  The  un- 
willingness of  the  courts  to  give  the  decisions  of  the  Commis- 
sion  a  more  general  effect  has  assisted  in  tying  the  decisions 
down  to  the  facts  of  a  particular  case.  In  October,  1901,  the 
Commission  decided  that  certain  coal  rates  charged  by  a  number 
of  Scotch  railways  were  unreasonable.  The  rates  were  discon- 
tinued, as  regards  the  complainants,  in  December  of  that  year. 
Three  other  traders,  who  were  subjected  to  the  same  rates,  but 
who  had  not  been  parties  to  the  suit,  later  brought  action  in  the 
courts  for  damages  because  the  railways  had  continued  to  charge 
them  the  rates  complained  of.  The  court  held,  however,  that 
the  decision  of  the  Commission  had  no  general  effect.  Although 
the  rates  had  been  found  unreasonable,  the  court  would  take  no 
cognizance  of  this  unless  they  were  also  illegal. ^ 

The  functions  committed  to  the  Commission  are  extremely 
diverse.  While  it  has,  with  evident  innuendo,  been  called  the 
Traders'  Court,  it  has,  in  addition  to  dealing  with  rate  matters, 
an  extensive  jurisdiction  in  regard  to  arbitration  of  matters 
referred  to  it  by  the  Board  of  Trade ;  e.g.,  differences  between 
railways  involving  such  matters  as  running  rights,  number  of 
trains  under  a  running  arrangement,  arrangements  in  regard  to 
connection  in  a  through  train  service  over  a  connecting  line, 
division  of  expenses  between  the  owning  and  the  controlling 
company,  differences  between  the  Postmaster-General  and  rail- 
ways in  regard  to  postal  payments,  questions  arising  in  connection 

1  Lanarkshire  Steel  Co.,  Ltd.  v.  Caledoninn  Ry.,  11  SrotsLawTimosEpports. 
407,  408.  A  preliiniiiary  decision  of  the  court  had  held  that  the  Coimiiission's 
decision  was  of  general  effect.    Ibid.,  225. 


7SS  K^\II-\VA^    im;()I'.i.kms 

with  tlu'  iiitroductioU  of  iinprovt'd  brakes,  coniplaints  in  regard 
to  the  water  supply  of  London.  In  addition  it  serves  as  a  court 
of  appeal  from  the  Board  of  Trade  in  cases  arising  out  of  the 
rules  niaele  by  the  Board  of  Trade  under  the  railway  labor  acts, 
and  has  alternative  jurisdiction  in  the  workmen's  trains  applica- 
tions. In  addition  to  jurisdiction  under  special  acts  the  Com- 
mission exercises  functions  finding  their  legal  sanction  in  some 
nineteen  general  acts. 

Not  only  are  there  complaints  at  present  in  regard  to  prefer- 
ences on  imported  products,  there  are  also  complaints  concern- 
ing the  rates  and  facilities  given  home  products.'  Complaint  is 
especially  active  in  the  case  of  Irish  agricultural  products.  Com- 
parisons, unfavorable  to  domestic  rates,  are  constantly  being 
made  with  foreign  rates.  The  question  of  shipments  on  "  owner's 
risk"  rates  gives  rise  to  many  complaints.  The  criticism  of  the 
Commission  on  Agriculture  of  1897,  that  the  rate  regulative 
legislation  has  not  given  clear  effect  "  to  the  intentions  of  Parlia- 
ment," ^  is  general  among  the  traders.  That  the  Commission  has 
not  accomplished  much  that  was  expected  of  it  is  a  patent  fact. 
Its  procedure  has  not  met  the  case  of  the  small  trader.  At  the 
same  time  the  rate  regulative  procedure  that  accomplishes  all 
that  is  expected  of  it  is  not  absent  from  England  alone.  The 
Commission,  it  must  be  remembered,  was  organized,  not  to  re- 
duce rates  or  to  intervene  actively  in  matters  of  rate  regulation, 
but  as  a  court  to  settle  differences.  As  a  court,  it  has  performed 
its  functions.  While  there  was,  at  the  outset,  some  tendency  on 
the  part  of  the  judicial  members  to  look  at  matters  from  a  legal 
standpoint  rather  than  from  the  standpoint  of  facts,  the  tendency 
has  been,  in  more  recent  years,  to  meet  the  conditions  rather 
than  to  bend  the  conditions  to  meet  preconceived  theories.  On 
questions  of  railway  law  the  Commission  has  been,  on  the  whole, 
more  in  touch  with  the  facts  than  the  ordinary  law  courts.  While 
the  expense  attaching  to  litigation  before  the  Commission  is 
readily  apparent,  it  may  be  queried  in  how  far  there  is  a  justifi- 
cation for  expecting  either  a  cheap  settlement  or  a  settlement,  at 
the  public  expense,  of  important  business  matters.  So  far  as 
1  Final  Report,  paragraph  526. 


ENGLISH   RAILWAY  COMMISSION  789 

England  is  concerned,  the  attempts  to  obtain  cheap  settlements, 
in  the  face  of  the  existing  involved  body  of  railway  law,  would 
mean,  if  successful,  results  of  little  worth. 

In  the  United  States  the  Federal  courts  have  recognized  the 
debt  of  the  Act  to  Regulate  Commerce  to  the  English  regulative 
legislation.  But,  when  comparison  is  made  of  the  constitution 
and  functions  of  the  English  Commission  with  those  of  the 
Interstate  Commission,  differences  At  once  appear. 

The  English  Commission  is  a  court.  The  American  Commis- 
sion has  the  functions  of  a  referee  or  special  commissioner.  The 
former  has  final  decision  in  regard  to  fact  and  a  limitation  on  the 
right  of  appeal,  with  the  result  that  appealed  cases  are  normally 
settled  within  a  year:  The  latter  has  no  finality  of  decision  in 
regard  to  fact,  and  appeals  from  its  decisions  have  taken  from 
two  to  nine  years  to  decide.  While  the  English  Commission 
has  been  overruled  in  the  period  ending  1904,  wholly  or  partly, 
in  six  out  of  thirty-eight  appeals,  the  American  Commission  has, 
in  approximately  the  same  period,  been  overruled  in  twenty -nine 
out  of  thirty-eight  appeals.^  While  the  Interstate  Commerce 
Commission  has,  practically  from  the  outset,  claimed,  as  a  neces- 
sary implication  from  the  language  of  its  enabling  statute,  an 
amendatory  rate-making  power,  the  English  Commission,  orga- 
nized as  a  court,  has,  almost  without  exception,  kept  aloof  from 
making  implications  extending  its  jurisdiction,  and  has  denied 
any  intention  to  exercise  a  rate-making  power.  While  the  mem- 
bers of  the  American  Commission  hold  on  a  limited  tenure  and 
the  Commission  is  a  bipartisan  organization,  the  tenure  of  the 
lay  commissioners  in  the  English  Commission  is  for  good  con- 
duct, there  is  a  pension  on  retirement,  no  question  of  bipartisan 
organization  enters  in,  and  the  provision  is  made  that  one  of  the 
commissioners  shall  have  technical  knowledge  of  railway  affairs. 
The  judicial  members  of  the  English  Commission  are  assigned 
to  it  for  five  years ;  but  during  the  period  they  are  not  engaged 
in  the  Commission  work  they  perform  their  regular  duties  as 
judges  of  the  high  court. 

1  See  Table  III.  See  also  Appendix  1),  Vol.  V,  p.  331,  Hearings  of  Com- 
mittee on  Interstate  Commerce,  etc.,  1905. 


T'.M)  HATLWAV   IMJOr.LKMS 

In  till'  details  of  the  regulative  policy  which  has  developed 
iiiuU'i-  iho  Commissions,  resemblances  and  differences  appear.' 
The  English  regulative  policy  is  not  in  harmony  with  that  of  the 
United  States  in  regard  to  the  extent  to  which  competition  is 
to  be  considered  as  a  justification  of  rate  anomalies.  While  the 
English  legislation  eliminates  competition  in  the  case  of  import 
rates,  the  American  position,  as  established  in  the  Import  Rate 
case,  states  that  competition  is  to  be  considered  as  affecting  both 
import  rates  and  domestic  rates.  In  the  case  of  domestic  rates 
the  English  Commission  at  first  would  not  recognize  competi- 
tion as  the  justification  of  an  anomalousl}'  low  rate  basis  unless 
a  well-defined  ''  public  interest "  was  thereby  served.  Later  it 
accepted  the  same  view  as  was  set  forth  in  the  United  States  in 
the  Alabama  Midland  case  ;  namely,  that  competition  is  one  of 
the  matters  which  may  lawfully  be  considered  in  making  rates. 
The  grievance  of  secret  rebates,  one  of  the  central  evils  in  the 
United  States,  is  practically  nonexistent  in  England.  There  is 
no  provision  other  than  that  of  the  undue  preference  clause  to 
cover  such  a  grievance.  In  both  countries  the  principle  that 
undue  preference  is  a  question  of  fact  has  been  accepted.  While 
the  United  States  has  singled  out  a  particular  form  of  preference 
for  special  treatment  under  the  "  long-and-short-haul "  clause, 
England  has  allowed  more  elasticity  by  placing  the  matter  under 
a  general  clause.  On  the  question  of  the  justifiability  of  grant- 
ing wholesale  rates  in  respect  of  quantities  larger  than  car-load 
lots,  the  American  decisions  have  been  contradictory.  The  lower 
courts  have  shown  a  tendency  to  accept  the  decision  in  Nichol- 
son's case,  but  in  the  Party  Rate  case  the  Supreme  Court  estab- 
lished as  the  law  that  a  discrimination  in  respect  of  quantity, 
even  if  allowed  to  all  doing  the  same  amount  of  business,  is  to 
be  considered  from  the  standpoint  of  public  policy  and  the  effect 
of  such  an  arrangement  upon  trade  competition.^    In  so  deciding 

1  There  is  no  recognition,  in  the  working  of* the  English  Commission,  of 
results  arrived  at  in  the  regulative  policy  of  the  United  States. 

2  /.  C.  C.  V.  Baltimore  &  Ohio  Ed.  Co.,  145  U.  S.  263.  This  upholds  the  gen- 
eral position  taken  at  an  earlier  time  by  the  Interstate  Commerce  Commission  in 
Providence  Coal  Co.  v.  Providence  &  Worcester  It.  Co.,  1  I.  C.  C.  Decisions,  363. 
See  also  Judson,  The  Law  of  Interstate  Commerce  and  its  Federal  Regulation, 
p.  194. 


ENCxLISH  RAILWAY  COMMISSION  791 

there  has  been  accepted  as  a  principle  what  is,  so  far,  only  a 
tendency  in  the  English  regulative  policy. 

The  dissimilarities  of  the  matters  dealt  with  by  the  two  Com- 
missions will  be  seen  by  referring  to  Table  I.  The  items  com- 
mon to  the  two  Commissions  are  legality  of  rates,  unreasonable 
rates,  reasonable  facilities,  and  undue  preference. ^  In  all,  about 
one  half  of  the  applications  made  to  the  English  Commission 
are  concerned  with  matters  of  a  kind  coming  before  the  Ameri- 
can Commission. 

The  English  Commission  has  used  two  sets  of  rate  principles : 
competition  as  an  important  factor  in  differential  rates,  export 
rates,  and  in  general  in  the  home  side  of  undue  preference  ;  cost 
of  service  in  regard  to  preferential  rates,  and  unreasonable  rates. 
This  has  been  in  great  degree  attributable  to  the  legislation. 
The  traders  have  desired  free  trade  in  exports,  not  in  imports. 
Admitting  that  there  has  been  a  certain  judicial  bias  in  favor 
of  the  cost-of-service  principle,  it  is  at  the  same  time  apparent 
that  legislation,  like  that  of  1894,  which  makes  a  past  rate  the 
j^rinia  facie  criterion  of  reasonableness  rules  out  the  possibility 
of  considering  present  competition.  The  defects  of  the  legisla- 
tion of  1894  are  its  own.  The  Commission  has  made  the  legis- 
lation less  unworkable  than  could  have  been  expected. 

A  considerable  part  of  the  desire  to  control  and  lower  actual 
rates  in  England  pertains  to  that  hysterical  belief  in  England's 
industrial  decadence  which  has  found  some  favor  in  recent  years. 
A  considerable  part  of  the  criticism  arises  from  the  endeavor  to 
prove,  on  the  basis  of  foreign  statistics  not  properly  comparable 
with  English  statistics,  that  English  rates  are  unduly  high. 
Some  rearrangements  in  the  Commission's  machinery  would, 
however,  effect  improvements.  An  arrangement  whereby,  when 
a  question  of  principle  is  established  in  a  decision  of  the  Com- 
mission as  distinct  from  a  mere  finding  on  facts,  the  enforce- 
ment should  be  placed  in  the  hands  of  the  Board  of  Trade 

1  I  omit  sidings'  rent  (demurrage)  charges,  because  tlie  conditions  under 
which  these  arise  in  England  differ  entirely  from  those  existing  in  the  United 
States. 


7!I2  1:A1L\\.\^     I'KOI'.LKMS 

insteiul  of  Icuviiii:^  it  as  ii  (Hiestioii  of  possible  dispute  to  be 
foiuj^bl  out  in  iuilivichuil  cases,  would  effect  an  iuii)rovenieut. 
A  closer  articulation  of  tlie  conciliation  procedure  of  the  Hoard 
of  Trade  with  the  process  of  the  Connnission,  whereby  the  find- 
ings of  the  former  would  have  a  status  before  the  latter,  would 
also  be  expedient.  The  Commission  is  becoming  more  and  more 
a  technical  court,  whose  decisions  are  modified  by  an  attempt  to 
obtain  settlements  rather  than  legal  decisions.  Notwithstanding 
the  criticism  directed  against  it,  it  is  ditlicult  to  see  how,  con- 
sidering the  peculiar  geographical,  industrial,  and  railway  con- 
ditions it  has  faced,  the  Commission  could  have  accom[)lished 

more  than  it  has  done. 

S.  J.  McLean 

Leland  Stanford  Jr.  University 


ENGLISH   RAILWAY  COMMISSION 


793 


TABLE  I 
Subject-Matter  of  Applications  Dealt  with  by  the  Commission,  1889-19031 


• 

i 

1 

s 

i 

i 

ob 

i 

5b 

00 

1 

05 
1 

1 

1 

1 

Board  of  Trade  (Prevention  of  Accidents 
Act,  1900) 

3 

3 

2 

8 

4 
3 

2 

3 
5 

3 

4 
1 

2 
5 
1 

; 

1 

5 

2 

4 
2 

1 

6 
5 

2 

1 

1 

1 

5 

2 

4 

13 
63 

6 
1 

3 

2 

3 

1 

6 
1 

2 
4 
10 
6 
3 
4 
1 

7 
2 

3 

4 

3 

2 

5 

1 

6 
2 

1 

2 

2 
1 

3 

24 

4 
1 

3 

23 

2 
2 

1 

2 

2 
6 

6 

25 

3 

1 
1 

5 

2 
3 

2 

2 

3 

8 

2 

4 

2 
3 

2 

1 

4 

97 

1 
3 

6 

2 
3 

1 

6 

4 

1 
10 

108 
23 

1 

1 
1 

1 

26 
1 

Facilities,  reasonable 

Postmaster-General,      applications      con- 
cerning     

3 

8 

Rates,  distinction  of 

Rates,  legality  of 

1 

Sidings,  rent  (demurrage) 

Sidings,  rebate  from  sidings'  cliarge  .     .    . 
Sidings,  services  on,  charges  for     .... 

Terminal  charges 

Trucks,  rebates  because  not  supplied    .    . 
Railways,  differences  under  special  acts, 

etc 

Railways,  working  agreements  approved  . 

"Water  Act,  Metropolitan  (1897),   applica- 
tions     

3 
3 

1 

10 

2 

1 
5 

1 

91 
3 
24 

2 
1 

TABLE   II 
Cases  Withdrawn  or  Settled  either  in  Court  or  Outside,  1889-1903  ^ 


1 

i 

1 

1 

s 

1 

i 

s 

1 
2 

2 
3 
2 
20 
2 
1 
2 

1 

00 

s 

2 

1 

2 

19 
3 

2 
12 

2 

1 
8 

2 

1 

1 

4 

1 
1 

3 

1 

1 
3 

1 

1 
1 

4 

1 

1 
1 

3 

2 

1 
30 

1 

8 

Facilities,  reasonable 

Postmaster-General,  applications  concern- 

1 

- 

1 
1 

2 

2 
1 

1 
2 

1 
2 

1 

2 

2 
1 

2 
1 
16 
2 
2 
1 

2 
2 

2 

Ti 

Rates,  legality  of 

: 

1 

Rates,  through 

Rates,  unreasonable 

Sidings,  rent  (demurrage) 

Sidings,  rebate  from  sidings'  charge    .     .     . 

Sidings,  services  on,  charges  for      .... 

Railways,  differences  under  special  acts, 

etc 

1 

Workmen's  trains  applications 

Water  Act,  Metropolitan   (1897),   applica- 
tions     

: 

: 

~ 

1  In  various  cases  a  number  of  points  are  dealt  with.    In  constructing  the  table,  I  have 
selected  the  most  important  point  in  each  case. 


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XXVIII 
RAILWAY  REGULATION  IN  FRANCE  i 

rriHE  railway  policy  of  France  is  based  on  the  view  that 
-■-  railways  should  be  exploited,  not  by  the  State,  but  by 
strong  independent  companies  under  strict  government  control. 
National  purchase  has  again  and  again  been  considered,  but  has 
always  been  rejected.  When  last  it  was  proposed  in  the  French 
Parliament  that  the  State  should  buy  out  four  of  the  large 
railway  companies,  one  hundred  Chambers  of  Commerce  voted 
against,  and  one  only  for,  the  proposal.  While  the  companies 
are  encouraged  to  earn  large  profits,^  they  are  never  allowed  to 
compete  with  one  another,  or  to  invade  one  another's  territory, 
and  their  arrangements  for  sharing  traffic  or  earnings  constantly 
receive  official  sanction.  The  State  has  refrained  from  dictat- 
ing their  tariffs,  and  confined  itself  to  exercising  a  veto  over 
those  which  they  propose.  Under  the  Railway  Conventions  of 
1883,  as  under  those  of  1859,  the  government  has  no  power 
either  to  fix  or  to  alter  rates.  The  proposal  of  a  rate  must 
emanate  from  one  of  the  companies,  but  before  taking  effect  it 
has  to  be  approved  by  the  Minister  of  Public  Works. 

The  official  machinery  by  which  this  control  over  rates  is 
exercised  consists  of  three  parts :  a  salaried  corps  of  expert 
officials  for  gathering  information ;  a  large  nonsalaried  com- 
mittee made  up  of  high  officials,  members  of  the  legislature, 
and  representatives  of  the  business  community,  to  give  advice 

1  From  the  QnarterUj  Journal  of  Economics,  Vol.  XX,  1906,  pp.  279-286. 
Further  details  are  given  in  translations  from  Colson's  "  Abr6g(5  de  la  Lt\gis- 
lation  des  Cheinins  de  Fer,  etc.,"  in  Hearings  before  the  Senate  (Elkins) 
Committee  on  Interstate  Commerce,  190r),  Vol.  V,  Appendix,  pp.  265-297. 

■■^  M.  Telletan,  in  his  report  of  May  12,  1889,  pointed  out  that  French  railway- 
shares  paid  from  10  to  24  per  cent  of  their  original  cost ;  since  then  there  have 
been  some  increases  in  dividends. 

795 


7'.)()  KAILW.W   TKOr.LKMS 

based  on  that  iiii\)riuatioii ;  ami,  lastly,  tlio  Minister  who  acts 
on  that  advice. 

The  permanent  ollicials  who  investigate  and  report  on  all 
questions  concerning  rates  number  68,  and  cost  the  State  400,- 
000  francs  a  year;  that  is,  10  francs  for  each  kilometer  of  rail- 
way at  present  in  operation.*  Of  this  amount  258,500  francs 
represent  the  salaries  of  the  chief  experts,  32  in  number.^  At 
their  head,  receiving  20,200  francs  a  year,  is  the  Director  of 
Commercial  Supervision  {Dirccteur  du  Controle  Commercial)^ 
who  studies  the  tariffs  and  commercial  workings  of  all  the 
French  companies.  Under  his  orders  are  the  General  Super- 
visors of  Conunercial  Exploitation  {Controlcurs  Generaux  de 
r Exploitation  Commerciale),  each  of  whom  has  similar  duties  in 
respect  to  a  single  railway,  receives  11,400  francs  a  year,  and 
is  assisted  in  his  work  by  one  Principal  Inspector  and  several 
Special  Inspectors.  To  each  railway  is  assigned  one  Principal  In- 
spector {Inspecteur  Prindpal)  of  Commercial  ^Exploitation,  receiv- 
ing 8000  francs  a  year,  and  from  three  to  five  Special  Inspectors 
(Inspecteurs  Partieuliers),  each  of  whom  receives  from  6500  to 
5500  francs  a  year.  These  inspectors  are  all  under  the  orders 
of  the  General  Supervisor  in  charge  of  that  particular  railway. 

There  is  at  the  Ministry  of  Public  Works  a  bureau  of  Rail- 
way Direction,  one  of  the  divisions  of  which  investigates  tariffs 
and  charges,  and  the  head  of  w^hich  is  known  as  the  Director  of 
Railways  (Directeur  des  Chemins  de  Fer).  This  high  official 
acts  as  counselor  to  the  Minister  on  all  points  connected  with 
railway  administration. 

But  the  Minister's  chief  adviser  is  the  Consultative  Com- 
mittee of  Railways  (Comite  Considtafif  des  Chemins  de  Fer) 
over  which  he  presides,  and  which  examines  questions  of  rates 
as  well  as  all  others  affecting  the  relations  between  the  railway 
companies  and  the  State.  The  organization  of  this  Committee 
has  been  several  times   changed.    In  its  present  form,  which 

'  The  40,000  kilometers  "  of  general  interest  "  are  alone  to  be  counted,  since 
tariffs  of  local  lines  are,  as  a  rule,  passed  upon  by  the  prefects  of  the  several 
departments. 

2  M.  Sibille's  Report  on  Budget  of  1905  (C^.(ZesD^pu«^a,  No.  1962),  pp.  148,183. 


RAILWAY   CONTROL  I?^  FRANCE  707 

dates  from  1898,  it  has  100  unpaid  members,  10  ex  officio  and 
90  appointed  for  two  years  by  the  President  of  the  Republic. 
The  present  membership  consists  of  36  government  officials 
(6  ex  officio),  34  members  of  the  legislature  (4  ex  officio),  and 
30  men  holding  no  political  office.  A  combination  is  thus  se- 
cured of  administrative,  legislative,  and  general  opinion. 

Among  the  officials  are  the  Director  General  of  Customs,  a 
brigadier  general  on  the  general  staff,  the  Directors  of  Forests, 
of  Agriculture,  of  Commerce,  and  of  Labor,  the  Director  of  Roads, 
Navigation  and  Mines,  the  Director  of  Commercial  Supervision, 
the  Director  of  Railways,  and  five  other  members  of  the  Coun- 
cil of  State.  Among  these  last  is  M.  Picard,  well  known  as  the 
author  of  the  two  principal  works  on  French  railways,  who,  as 
vice  chairman,  presides  over  the  Committee  in  the  absence  of  the 
Minister;  while  M.  Colson,  another  member,  is  almost  equally 
well  known  for  his  book.  Transports  et  Tarifs,  and  for  the 
articles  on  Transportation  which  he  contributes  to  the  Revue 
Politique  et  Parlementaire.  Both  these  officials  have  heretofore 
filled  the  post  of  Director  of  Railways. 

Among  the  Deputies  MM.  Baudin,  Barthou,  Bourrat,  and 
Sibille,  and  among  the  Senators  M.  Waddington,  are  specially 
conversant  with  railway  problems,  the  first  two  being  ex-Min- 
isters  of  Public  Works,  and  the  three  others  having  written 
elaborate  reports  on  various  railway  questions. 

In  the  general  group  we  find  twelve  presidents  or  members 
of  Chambers  of  Commerce  (Paris,  Lille,  Havre,  Lyons,  Bordeaux, 
and  Marseilles  ])eing  among  the  cities  represented),  six  presi- 
dents or  members  of  national  Agricultural  Societies,  two  work- 
ingmen,  the  Governor  of  the  Bank  of  France,  seven  business 
men  or  civil  engineers,  two  of  whom  represent  internal  naviga- 
tion, one  judge,  and  one  representative  of  the  International 
Railway  Congress.  This  last  member,  M.  Griolet,  is  also  vice 
chairman  of  the  Railway  du  Nord,  and  is  the  only  railway 
official  belonging  to  the  Consultative  Committee.^ 

1  For  further  particulars,  see  J.  de  la  Ruelle,  Controls  des  Chemins  de  Fer 
(Paris,  1903),  p.  218,  and  for  the  names  of  present  members,  see  Annuaire  du 
Min.  des  Travaux  Publics,  1905,  p.  34. 


T'.tS  KAiLW.u    im;im;i.k.ms 

riom'ral  incctings  of  the  (^(nnmitt(>o  arc  seldom  lielcl,  most  of 
its  Itusiness  bi'ing  tviiiisaeted  liy  its  *•  permanent  seetion,"  a  sub- 
eommittee  of  40  members  (4  cr  officio^  36  annually  chosen  by  the 
Minister),  whieh  meets  at  least  once  a  week.  This  "section" 
comprises  twelve  Senators  and  Deputies,  six  representatives  of 
commerce,  industry,  and  agriculture,  three  civil  engineers,  two 
workingmen,  and  the  member  of  the  Railway  Congress,  besides 
sixteen  of  the  government  officials.  Matters  of  importance  may 
be  referred  to  the  whole  Consultative  Committee  by  the  Minister, 
or  by  the  Vice  President  either  on  his  own  initiative  or  upon  the 
request  of  five  members  of  the  "section." 

When  a  company  wishes  to  introduce  a  new  rate  or  to  change 
an  old  one,  the  regular  procedure  is  the  following.  The  text 
of  the  proposed  rate  must  be  posted  up  or  otherwise  advertised 
in  the  company's  stations,  and  sent  to  the  Minister  of  Public 
Works,  to  the  Director  of  Corameicial  Supervision,  to  the  Pre- 
fects of  departments,  and  to  the  Chambers  of  Commerce  of  dis- 
tricts affected  by  the  rate.  The  Chambers  of  Commerce  and 
the  Prefects  are  expected  to  forward  to  the  Minister  in  writing 
any  protests  or  comments  wdiich  they  may  wish  to  make. 

The  proposal  is  then  carefully  examined  by  the  General 
Supervisor  of  Commercial  Exploitation  in  charge  of  the  rail- 
way pioposing  the  rate,  whose  duty  it  is  to  report  thereon.  In 
this  task  he  is  assisted  by  the  Principal  Inspector  and  the  sev- 
eral Special  Inspectors  of  the  railway  in  question.  These  officials 
are  instructed  personally  to  inform  themselves  as  to  the  needs 
of  trade  and  the  views  and  wishes  of  business  men.  Having 
done  so,  they  prepare  a  written  report,  which  must  embody  "  a 
thorough  discussion  of  the  prices  proposed,  and  a  comparison 
between  them  and  other  tariffs  in  force  on  the  French  railways 
at  the  various  shipi)ing  points  with  which  this  traffic  competes."^ 
The  report  is  submitted  to  the  Director  of  Commercial  Super- 
vision, who  transmits  it  with  or  without  revision  to  the  Minister 
of  Public  Works.  As  soon  as  these  documents  reach  the  Min- 
ister he  lays  them  before  the  Consultative  Committee.  If  this 
Committee  makes  a  favorable  report,  the  Minister  approves  the 

1  Ministerial  Circular  of  July  16,  1880. 


RAILWAY  CONTROL  IN    FRANCE  799 

rate,  and  it  usually  goes  into  effect  within  fifteen  days  from 
that  date.  Thus  on  March  25,  1904,  a  proposed  addition  to 
one  of  the  special  tariffs  of  the  Railway  de  TOuest  was  duly 
advertised.  It  was  officially  approved  on  the  11th,  and  took 
effect  on  the  26th  of  April,  1904.^  No  rate  can  hecome  opera- 
tive until  one  month  after  having  been  advertised.  In  order 
to  keep  the  jiublic  fully  informed,  the  text  of  the  proposal  and 
that  of  the  ministerial  approval  are  published  in  the  Journal 
Officiel. 

The  ministerial  sanction  given  to  any  rate  may  be  withdrawn 
ai  any  time,  and,  in  accepting  a  rate  proposed,  the  Minister  may 
attach  to  his  approval  certain  conditions  to  which  the  company 
must  assent  before  the  rate  can  take  effect.  A  passenger  rate 
cannot  be  increased  till  it  has  been  in  force  three  months,  nor  a 
freight  rate  till  it  has  been  in  force  one  year. 

The  interval  between  the  proposal  and  the  approval  of  a  rate, 
which  is  normally  one  month,  is  sometimes  a  great  deal  longer. 
Should  it,  however,  be  necessary  to  put  a  rate  into  immediate 
effect,  the  Minister  often  grants  a  provisional  "  homologation," 
whereby  the  rate  becomes  at  once  available  pending  its  formal 
consideration  and  approval. 

The  French  tariffs  that  have  been  thus  approved  are  pub- 
lished in  the  two  large  folio  volumes  of  the  Reciieil  Chaix,  a 
revised  edition  of  which  is  issued  quarterly.  The  edition  bear- 
ing date  July,  1905,  but  not  actually  issued  till  last  September, 
has  1712  pages  in  the  volume  containing  the  tariffs  for  slow 
freight,  and  980  pages  in  that  containing  the  rates  for  fast 
freight  and  passengers.  These  manuals  would  be  less  bulky  if 
they  embodied  only  the  tariffs  of  the  large  companies,  but  they 
also  include  the  rates  of  all  the  light  railways,  narrow-gauge 
lines,  and  tramways  throughout  France.  In  the  intervals  be-^ 
tween  the  editions  of  this  work  newly  approved  rates  are  pub- 
lished in  a  special  weekly  bulletin,  as  well  as  in  the  Journal 
Oficiel.  Thus  the  authorized  railway  tariffs  are  at  all  times 
readily  accessible  to  the  French  public. 

Since  the  French  legard  lailway  tarification  from  a  commer- 
cial standpoint,  their  tariffs,  like  those  of  England  and  the 
1  Journal  Officiel,  April  3  and  25,  1004. 


SOO  HATLWAV    I'KOl'.I.KMS 

United  States,  are  based  on  the  so-called  "value"  system, 
wliioh  consists  in  cliaigino-  sudi  rates  as  the  trallic  will  bear. 
Their  system  of  ilassilication  would  take  too  long  to  explain. 
Suffice  it  to  say  that,  in  compliance  with  the  demands  made  by 
the  government  in  1879,  the  classification  and  description  of 
freight  was  made  uniform  on  all  the  French  railways  by  their 
reformed  tariffs  approved  between  August,  1884,  and  Decem- 
ber, 1890.  At  the  same  time  the  number  of  reduced  tariffs  and 
special  rates  was  much  cut  down,  and  the  Recueil  Cliaix  con- 
siderably simplified.  Since  those  reforms,  however,  the  large 
family  of  special  rates  has  continued  to  multiply,  under  the 
pressure  of  commercial  needs,  though  the  Consultative  Com- 
mittee is  on  principle  opposed  to  them,  and  seeks,  whenever 
possible,  to  procure  in  their  stead  reduced  kilometric  scales  of 
rates  drawn  up  on  the  Belgian  differential  plan,  and  applicable 
in  any  direction  and  on  any  line  of  the  given  railway. 

In  sanctioning  a  special  rate,  the  Committee  almost  always 
insists,  as  a  condition  of  approval,  that  intermediate  stations 
shall  also  be  entitled  to  it,  and  that  a  special  rate,  say  from 
Toulouse  to  Orleans,  shall  be  enjoyed  as  far  as  Orleans  by 
goods  shipped  from  Toulouse  to  points  beyond  Orleans. 

The  Minister  of  Public  Works  having  no  power  to  fix  rates, 
the  principal  function  of  the  Consultative  Committee  is  to  check 
unjust,  discriminating,  or  capricious  tarification,  and  thus  by 
degrees  to  produce  throughout  France  an  equitable  system  of 
rates.  It  often  suggests  to  the  companies  what  changes  it  deems 
desirable,  and,  though  it  can  only  suggest,  yet  the  possession  of 
its  veto  often  enables  it,  when  granting  one  of  the  companies' 
requests,  to  gain  its  own  point  as  a  quid  i^ro  quo.  This  influence 
is  all  the  stronger  because  the  authority  vested  in  the  Minister, 
and  through  him  in  the  Consultative  Committee,  covers  not 
only  the  commercial  {i.e.,  rate-making),  but  also  the  technical 
and  financial  ^  sides  of  railway  administration.^ 

1  E.g.  no  railway  company  can  issue  bonds  without  tiie  assent  of  the  Con- 
sultative Committee  and  of  the  Minister. 

2  It  is  clearly  to  the  companies'  interest  not  to  offend  an  authority  on  which 
they  are  in  so  many  ways  dependent.  A  different  system  of  administration, 
interfering  only  in  commercial  matters,  would  be  far  from  having  the  same 
influence  (Colson,  Transports  et  Tarifs,  1898,  p.  350). 


RAILWAY  CONTROL  IN   FRANCE  801 

The  Committee  always  declines  to  indorse  any  special  rate 
savoring  of  undue  preference  or  discrimination ;  for  instance, 
a  rate  in  favor  of  goods  produced  by  a  particular  factory  or  of 
materials  ordered  by  a  particular  contractor.  It  also  rejects  any 
rate  calculated  to  draw  away  traffic  from  any  other  French  rail- 
way or  to  ruin  the  business  of  coasting  steamers  or  canal  boats. 
Thus  in  April,  1899,  a  special  rate  of  15  francs  on  mineral 
waters  shipped  to  Paris  was  requested  by  the  P.-L.-M.  Com- 
pany. This  rate  was  approved  in  April,  1900,  but,  the  canal 
men  of  Roanne  having  pointed  out  that  it  was  ruining  them, 
the  approval  was  withdrawn  on  August  24,  1901. 

The  Committee  endeavors  to  adjust  the  tariffs  enjoyed  by 
competing  industrial  centers  in  such  a  way  as  to  secure  to  each 
the  natural  advantages  of  its  location.  If,  however,  a  particular 
place  or  industry  has  long  had  the  benefit  of  certain  special 
rates,  and  has  thus  acquired  a  quasi-vested  right  to  them,  the 
Committee  will  not  allow  them  to  be  abolished  without  stipu- 
lating that  they  shall  be  reestablished,  "  if  within  a  year  their 
disappearance  gives  rise  to  well-founded  complaints." 

A  good  illustration  of  the  manner  in  which  the  Committee 
may  obtain  concessions  from  the  companies  is  furnished  by  the 
negotiations  leading  up  to  the  approval  on  October  27,  1900,  of 
the  new  tariff  of  Accessory  Charges  (Frais  Accessories).  The 
companies  had  for  twenty-five  years  been  urging  that  the  regis- 
tration fee  for  luggage  should  be  raised  to  15  centimes,  while 
the  Committee  still  insisted  on  maintaining  it  at  10  centimes. 
The  Committee  also  wished  that  the  companies  should  guaran- 
tee to  the  consignor  of  freight  using  the  lines  of  several  com- 
panies the  route  offering  the  cheapest  combination  of  rates,  even 
when  not  demanded  by  him,  as  they  had  been  doing  since  1883 
for  the  consignor  of  freight  using  the  lines  of  a  single  company. 
The  companies,  on  the  other  hand,  had  been  anxious  to  suppress 
certain  special  rates  affecting  about  1350  kinds  of  freight.  The 
matter  was  settled  by  a  compromise,  in  which  the  companies 
waived  their  claim  for  the  15-centime  registration  fee,  and  con- 
sented to  guarantee   the  cheapest  route  in  the   manner  men- 


SU2  KAILW.W    rUOl'.LKMS 

tioned,  while  the  (\>mmittee  advised  the  Minister  to  sanction 

the  suppression  of  the  special  rates  on  the  gronnd  that  they 

were   praetieally  obsolete.^ 

In  .Vlgeria  and  in  the  Regency  of  Tunis  the  service  of  coni- 

niereial  supervision  has  been  organized  in  a  manner  practically 

identical  with  that  above  described,  and  proposals  of  rates  are 

referred  eitlier  to  the  Minister  of  Public  Works  in  Paris  or  to 

the  Kesident-General  in  Tunis.    This  latter  personage  is  assisted 

by  a  consultative  committee  of  eight  or  ten  members  most  of 

whom  are  officials  connected  with  the   administration   of  the 

Regency. 

"      -^  W.  H.  Buckler 

Johns  Hopkins  University 

1  Arrets  du  27  October,  1900,  Impr.  Nat.,  1902. 


XXIX 

RAILROAD   OWNERSHIP  IN   GERMANY  i 


THE  Prussian  railway  administration  was  reorganized  on 
April  1,  1895.^  Previous  to  that  time  there  had  existed 
two  distinct  official  bodies,  or  "  resorts,"  immedately  below  the 
minister  of  public  works.  The  latter  was  then,  and  is  now,  the 
executive  head  of  the  railway  administration,  and  the  two  bodies 
subordinated  to  him  were  known  as  Eisenbahndirektionen  and 
Eisenbahnbetriebsamter,  respectively,  the  one  having  direct 
charge  of  the  operation  of  the  railways  and  the  other  performing 
purely  administrative  functions.  Of  the  Direktionen  there  were 
11,  and  of  the  Betriebsiimter  75.  The  functions  of  both  of  these 
have  now  been  consolidated  in  the  royal  State  railway  directories, 
of  which  20  have  been  created,-^  with  their  seats  at  Altona,  Ber- 
lin, Breslau,  Bromberg,  Cassel,  Cologne,  Danzig,  Elberfeld, 
Erfurt,  Essen,  Frankfurt  a.  M.,  Halle  a.  S.,  Hannover,  Katto- 
witz,  Konigsberg,  Magdeburg,  Miinster,  Posen,  St.  Johann- 
Saarbriicken,  and  Stettin.  Each  directory  is  composed  of  a 
president,  appointed  by  the  King,  and  the  requisite  number  of 
associates,  two  of  whom,  an  Ober-Regierungsrath  and  an  Ober- 
Baurath,  may  act  as  substitutes  of  the  president  under  the 
direction  of  the  minister.  Each  directory  has  complete  admin- 
istrative control  over  all  the  railways  within  its  limits,  although 
the  subordinate  civil  administrative  organs  of  the  State,  such 
as  the  Oberprilsident,  Regierungspriisident,  and  Landrath,  have 
certain  powers  in  the  granting  of  concessions,  police  regulations, 

1  From  Annals  of  the  American  Academy  of  Political  Science,  1897,  Vol.  X, 
pp.  399-421.  Ibid.  Vol.  XIX,  March,  1907,  is  another  good  description. 

2  Only  a  few  minor  changes  have  been  introduced  since. 

3  Since  this  was  written  (1897)  the  Hessian  railways  have  been  associated 
with  the  Trussian  and  the  number  of  directories  increased  to  21. 

803 


S04  KAii.w  AN'  im;()IU,i:ms 

etc.  Tlu^  (liivotory  (U'ciiU's  all  cases  arising  out  of  tlie  at'tioii  of 
special  ami  of  subordinate  branches  of  the  administration  ;  and, 
representing  the  central  administration,  it  may  accjuire  rights 
and  assume  responsibilities  in  its  behalf.  The  directories  may 
be  characterized  as  general  administrative  organs,  one  of  whose 
great  functions  is  the  proper  coordination  of  all  the  parts  of  the 
railway  system. 

Below  and  subordinated  to  them  are  special  administrative 
organs,  upon  whom  falls  the  duty  of  local  adaptation  and  super- 
vision. There  are  G  classes  of  these  local  oi'lices,  and  their  names 
indicate  in  a  general  way  their  functions  :  operating,  machine, 
traffic,  shop,  telegraph,  aud  building  offices  or  Inspektionen,  as 
they  are  called.  Shortly  before  the  new  system  went  into  opera- 
tion the  minister  of  public  works  issued  special  business  direc- 
tions for  each  class  of  offices.  The  contents  of  each  of  these 
ministerial  orders  may  be  grouped  under  3  heads :  (1)  the  posi- 
tion of  the  office  in  the  railway  service ;  (2)  its  jurisdiction  in 
matters  of  business ;  (3)  general  provisions.  To  give  a  detailed 
analysis  of  the  functions  of  the  local  offices  is  out  of  the  ques- 
tion here.  It  should  be  added,  however,  that  all  phases  of  the 
service,  whether  from  the  point  of  view  of  the  railways  or  of 
the  public,  are  carefully  provided  for.  Thus  one  of  the  fore- 
most duties  — "  die  vornehmste  Aufgabe  "  —  of  the  local  traffic 
office  is  to  maintain  a  "living  union"  between  the  railway  admin- 
istration and  the  public.  For  this  purpose  the  chief  of  the 
office  is  in  duty  bound,  by  means  of  numerous  personal  interviews 
and  observations,  to  inform  himself  concerning  the  needs  of  the 
service  in  his  district,  to  investigate  and  to  remedy  complaints 
and  evils  without  delay,  and  to  take  such  measures  as  will  se- 
cure the  most  efficient  service.  It  is  also  one  of  his  duties  to 
inform  the  public  concerning  the  organization  and  administra- 
tion of  the  railways,  so  as  to  avoid  idle  complaints.  This  single 
provision  in  the  rules  governing  one  of  the  local  offices  illus- 
trates the  spirit  of  them  all. 

Private  railways,  which  before  April  1,  1895,  had  been  super- 
vised by  a  special  railway  commission,  are  now  subject  to  the 
jurisdiction  of  the  president  of  a  directory  and  his  alternates. 


RAILKOADS   IN   GERMANY  805 

This  was  another  step  toward  greater  unity  in  the  system.  The 
directories  upon  whom  the  supervision  of  the  private  roads 
devolves  are  those  at  Altona,  Berlin,  Breslau,  Cassel,  Cologne, 
Elberfeld,  Erfurt,  Essen,  Frankfurt  a.  M.,  Halle,  Hannover, 
Konigsberg,  Magdeburg,  Mlinster,  St.  Johann-Saarbriicken,  and 
Stettin.  As  there  are  20  directories,  and  only  16  supervise  private 
railroads,  it  is  evident  that  jurisdictions  for  private  roads  are  not 
identical  with  those  of  directories.  Nor  does  each  directory  have 
an  equal  number  of  miles  of  private  or  State  roads  within  its  juris- 
diction. This  depends  largely  upon  the  geographical  distribution 
of  the  railways  and  upon  the  intensity  of  the  traffic.  Thus,  the 
Berlin  directory  supervises  587  kilometers  of  State  roads,  while 
Halle  has  11,88-1  kilometers.  The  other  directories  lie  between 
these  two  extremes.  It  may  be  added  that  on  April  1,  1895,  the 
private  roads  represented  together  only  2200  kilometers  (not 
including  Anschlussbahnen,  and  71  kilometers  rented  to  private 
parties)  against  27,060  kilometers  ^  of  State  roads,  of  which 
10,479  kilometers  contained  two  or  more  tracks. 

All  Prussian  railways,  then,  whether  State  or  private,  are 
subject  to  the  jurisdiction  of  a  carefully  graded  administrative 
system  —  local,  intermediate,  and  central  —  each  part  of  which 
is  connected  with  every  other  part  in  such  a  manner  that,  with- 
out interfering  with  the  ability  to  act  promptly  in  cases  of  emer- 
gency, every  act  not  only  finds  its  responsible  agent,  but  the 
central  organ  can  also  make  its  influence  felt  in  the  remotest 
branch  of  the  system  and  at  the  same  time  not  transcend  its 
responsibility  to  the  public. 

Advisor^/  councils  and  other  bodies.  Whether  we  regard  the 
interests  of  the  railways  and  of  the  public  as  identical  or  not, 
there  are  certainly  times  when  harmony  between  the  two  does 
not  exist.  This  may  be  due  to  the  failure  of  each  to  understand 
the  other,  or  to  some  wrongful  act  which  one  of  them  may  have 
committed.  Whatever  the  cause,  if  such  circumstances  do  arise 
any  organ  which  can  promptly  and  prudently  remove  the  friction 
performs  an  admirable  service  in  the  interests  of  public  traffic. 
Such  an  agent  is  found  in  Prussia  in  the  advisory  councils  and 
1  Increased  to  37,101  kilometers  by  the  close  of  I'JOO. 


806  KAILWAV    rKor.l.MMS 

othor  bodies  which  coiiporate  with  ilie  legally  responsible  parts 
of  the  railway  adininistration.  These  councils  are  created  by 
law,  and  are  required  to  meet  regularly  for  the  purpose  of 
coi">perating  with  the  State  administration  upon  all  the  more 
important  matters  pertaining  to  tlie  railway  traffic,  especially 
time-tables  and  rate  schedules. 

The  tirst  Gernum  advisory  council  was  organized  in  the  federal 
domam  of  Alsace-Lorraine.  Through  an  impulse  given  by  the 
chamber  of  commerce  of  the  city  of  INliilhausen  a  conference 
between  the  representatives  of  the  chambers  of  commerce  of 
Alsace-Lorraine  and  the  general  imperial  railway  directory  at 
Strassburg  was  held  at  Miilhuusun  on  October  21,  1874.  Organ- 
ization, composition,  and  functions  of  the  council  were  agreed 
upon  during  the  first  session.  Originally  its  membership  was 
confined  to  the  chambers  of  commerce  of  Alsace-Lorraine,  but 
later  representatives  of  the  various  agricultural  and  industrial 
bodies  were  also  admitted.  All  matters  falling  within  the  domain 
of  at  least  2  chambers  of  commerce  ccmld  be  brought  before  the 
council. 

The  proceedings  of  this  conference  made  such  a  favorable  im- 
pression upon  the  federal  railway  commissioner  that  he  attempted, 
although  without  immediate  success,  to  induce  the  other  Ger- 
man railways,  both  State  and  private,  to  assist  in  this  movement 
toward  a  closer  union  and  a  better  understanding  between  the 
commercial  and  railway  interests  by  instituting  similar  councils. 
The  circular  letter  of  the  commissioner,  addressed  to  the  rail- 
ways on  January  11,  1875,  is  one  of  the  most  significant  steps 
in  the  development  of  the  councils. 

"  This  arrangement,"  says  the  letter,  "  primarily  strives  to 
establish  an  intimate  connection  between  the  places  intrusted 
with  the  administration  of  the  railways  and  the  trading  classes. 
It  will  keep  the  representatives  of  the  railways  better  informed 
as  to  the  changing  needs  of  trade  and  industry  and  maintain  a 
continued  understanding  between  them  ;  and,  on  the  other  hand, 
it  will  impart  to  commerce,  etc.,  a  greater  insight  into  the  pecul- 
iarities of  the  railway  business  and  the  legitimate  demands  of 
the  administration,  and  consequently,  by  means  of  earnest  and 


RAILROADS  IN  GERjVIANY  807 

moderate  action,  it  will  react  beneficially  upon  both  sides  through 
an  exchange  of  views." 

This  statement  sounds  the  keynote  of  the  whole  movement. 
For  a  time  the  railways  were  not  very  ready  to  respond,  and  the 
movement  made  little  progress  until  the  policy  of  the  State  to 
purchase  private  railways  was  about  to  be  inaugurated.  The 
Prussian  Landtag  made  its  approval  of  the  first  bill  for  the 
nationalization  of  railways  dependent  upon  certain  wirthschaft- 
liche  Garantien  (economic  guarantees)  which  it  demanded  of 
the  Government.  A  resolution  to  this  effect  was  adopted  by 
the  Landtag  in  1879.  The  ministry  of  trade  and  industry  had 
already  taken  active  steps  during  the  previous  year.  In  1880  a 
bill  embodying  the  motives  of  the  resolution  of  the  Landtag  was 
introduced,  and  after  having  undergone  various  changes  and 
modifications  was  approved  and  published  as  the  law  of  June  1, 
1882. 

Prussia  was  thus  the  first,  and,  up  to  the  present  time  is  the 
only,i  country  in  which  advisory  bodies  of  this  nature  were  placed 
upon  a  legal  basis.  The  law  is  entitled  Gesetz,  betreffend  die 
Einsetzung  von  Bezirkseisenbahnriithe  und  eines  Landeseisen- 
bahnraths  flir  die  Staatsbahnverwaltung.  As  the  name  indi- 
cates, it  creates  a  class  of  advisory  boards  or  councils  known  as 
Bezirkseisenbahnriithe  (circuit  councils),  and  one  national  coun- 
cil, called  Landeseisenbahnrath.  The  national  council  is  the  advi- 
sory board  of  the  central  administration,  and  the  circuit  councils 
of  the  railway  directories.  Since  the  reorganization  of  the  rail- 
way administration,  April  1,  1895,  8  circuit  councils  have  been 
in  existence,  with  their  seats  in  Bromberg,  Berlin,  Magdeburg, 
Hannover,  Frankfurt  a.  M.,  Cologne,  Erfurt,  and  Breslau.  It 
will  be  remembered  that  there  are  20  directories,  so  that  a  cir- 
cuit council  serves  as  an  advisory  board  for  more  than  one 
directory.  The  national  council  is  composed  of  40  members, 
holding  office  for  3  years.  Of  these,  10  are  appointed  and 
30  are  elected  by  the  circuit  councils  from  residents  of  the  prov- 
ince or  city,  representing  agriculture,  forestry,  manufacture,  and 

1  Japan  and  Switzerland  have  since  then  estabHshed  similar  councils  on  a 
legal  basis. 


SOS  KA1I.\\.\\     IMIoi'.I.KiMS 

tiadt",  accdi'diiiij^  to  a  st-heine  of  representation  published  in  a 
royal  ilocivi'.  Of  the  appointed  members,  3  ai-e  named  by  the 
minister  of  agrieulture,  domains,  and  forests  ;  3  by  the  minister 
of  trade  and  industry  ;  2  by  the  minister  of  finance  ;  and  2  by 
the  minister  of  public  works.  An  equal  number  of  alternates  is 
appointed  at  the  same  time.  Direct  bureaucratic  influence  is 
guarded  against  by  the  exclusion  from  appointment  of  all  imme- 
diate State  oflicials.  The  elective  members  are  distributed  among 
provinces,  departments,  and  cities,  by  the  royal  order  to  which 
reference  has  just  been  made,  and  both  members  and  alternates 
are  elected  by  the  circuit  councils.  The  presiding  officer  and 
his  alternate  or  substitute  are  appointed  by  the  King.  In  addi- 
tion, the  minister  of  public  works  is  empowered  to  call  in  expert 
testimony,  whenever  he  may  think  it  necessary.  Such  special- 
ists, as  well  as  regular  members,  receive  for  their  services  15 
marks  (about  <i'3.60)  per  day  and  mileage. 

The  national  council  meets  at  least  twice  annually,  and  delib- 
erates on  such  matters  as  the  proposed  budget,  normal  freight 
and  passenger  rates,  classification  of  freight,  special  and  dif- 
ferential rates,  proposed  changes  in  regulations  governing  the 
operation  of  railways,  and  allied  questions.  It  is  required  by 
law  to  submit  its  opinion  on  any  question  brought  before  it  by 
the  minister  of  public  works  ;  or,  on  the  other  hand,  it  may 
recommend  to  the  minister  anything  which  it  considers  condu- 
cive to  the  utility  and  effectiveness  of  the  railway  service.  Its 
proceedings  are  submitted  regularl}^  to  the  Landtag,  where  they 
are  considei-ed  in  connection  with  the  budget,  thus  establishing 
"an  organic  connection"  between  the  national  council  and  the 
parliament.  In  this  way  the  proceedings  are  made  accessible  to 
every  one,  and  an  opportunity  is  given  to  approve  or  disapprove 
what  the  council  does,  through  parliamentary  representatives. 
The  system  is  one  of  reciprocal  questioning  and  answering  on 
part  of  the  minister  of  public  works,  the  national  council,  and 
the  parliament. 

The  circuit  councils  are  equally  important  and  interesting. 
Since  .January  1,  1895,  9  of  these  have  been  in  existence. 
Their  membership,  which  varies  considerably  with  the  different 


EAILROADS  IN  GERMANY  809 

councils,  was  fixed  by  the  minister  of  public  works  in  Decem- 
Ijer,  1894.  Any  subsequent  moditications  which  may  have  been 
made  have  no  bearing  on  what  we  are  considering  here.  At 
that  time  the  council  at  Magdeburg  had  only  24,  while  that  at 
Cologne  had  75  members.  The  nature  of  their  composition  can 
best  be  illustrated  by  presenting  an  analysis  of  the  member- 
shi])  of  one  such  council.  The  council  of  Hannover,  comprising 
the  railway  directories  of  Hannover  and  Mlinster-Westphalen, 
seems  to  be  a  fair  type.  In  that  council  we  find  1  representative 
from  each  of  the  chambers  of  commerce  of  Bielefeld,  Geeste- 
miinde,  Hannover,  Harburg,  Hildesheim,  Liineburg,  Minden, 
Mlinster,  Osnabriick,  Ostfriesland  and  Papenburg,  Verden  and 
Wesel  ;  1  representative  from  each  of  the  following  corporations 
or  societies  :  Society  of  German  Foundries  in  Bielefeld,  German 
Iron  and  Steel  Industrials  in  Ruhrort,  Craftsmen's  Union  of  the 
Province  of  Hannover,  Branch  Union  of  German  Millers  in 
Hannover,  Union  of  German  Linen  Industrialists  in  Bielefeld, 
Society  for  Beet  Sugar  Industry  in  Berlin,  Society  for  the  Pro- 
motion of  Common  Industrial  Interests  in  the  Rhine  Country 
and  Westphalen,  in  Diisseldorf,  and  the  Society  of  German  Dis- 
tillers in  Berlin;  4  representatives  from  the  Royal  Agricultural 
Society  in  Celle  ;  3  from  the  Provincial  Agricultural  Society  for 
Westphalen,  in  Mlinster  ;  1  from  the  German  Dairy  Society  in 
Schladen  and  Hamburg,  the  Society  of  Foresters  of  the  Hartz, 
the  North  German  Foresters  in  Hannover,  the  Union  of  Forest 
Owners  of  Middle  Germany  in  Birnstein,  and  from  the  Society 
for  the  promotion  of  Moor  Culture  in  the  German  Empire  ;  and, 
lastly,  1  from  the  Society  of  German  Sea  Fishers  in  Berlin.  This 
one  illustration  is  probably  sufficient  to  show  the  thoroughly 
representative  character  of  tlie  circuit  councils.  If  a  circuit  com- 
prises railways  covering  territory  of  other  German  States,  the 
chambers  of  commerce,  industrial,  and  agricultural  societies  of 
such  territory  may  also  be  represented  in  the  council.  The  min- 
ister of  public  works  has  power  to  admit  other  members,  and 
frequently  does  so  when  the  nature  of  the  questions  upon  which 
the  council  deliberates  makes  it  desirable.  Thus,  at  a  meeting  in 
which  the  rates  on  coal  and  coke  —  to  be  noted  hereafter  —  from 


SIO  i:  A  11.  WAY   TTjOr.LKMS 

the  lili'  uisli  iiiiniiiL;"  tlisl  lii-ls  t(t  tlu'  srnsliorc  were  to  be  considered, 
tluMc  wcMi'  pri'siMii  an  OhcipiiisiiK'nl,  ac-cmnpanicd  by  an  asses- 
sor, a  ilopnty  ot  a  Kc^iorunospriisuU'nt,  a  liaiuhatli  (these  tliree 
are  civil  adniinistrative  onieers  presiding  over  a  jtrovince,  cir- 
euit,  and  department,  respeetively),  a  representative  of  tiie  Upper 
Mine  Olliee  at  Bonn  and  at  Dortmund,  of  the  Koyal  JNline 
Directory  at  Saarhriicken,  of  the  l\oyal  Railroad  Directory  at 
Hannover,  of  the  Dortmund  and  CJronau  and  Ensclieder  Rail- 
road Company  (i)rivate),  in  addition  to  the  regular  representatives 
and  voting  members. 

The  circuit  council,  as  has  been  indicated  above,  stands  in  a 
relation  to  the  railway  directory  similar  to  that  of  the  national 
council  to  the  minister.  The  law  makes  it  mandatory  upon 
the  directory  to  consult  the  circuit  council  on  all  important 
matters  concerning  the  railways  in  that  circuit.  This  applies 
especiall}'  to  time-tables  and  rate  schedules.  On  the  other  hand, 
the  council  has  the  right,  which  it  freely  exercises,  of  making 
recommendations  to  the  directory.  In  case  of  emergency  the 
directory  may  act  according  to  its  own  judgment  independently 
of  the  council,  but  it  is  required  to  report  all  such  cases  to  the 
standing  conmiittee  of  the  council  and  to  the  council  itself. 
This  provision  supplies  the  elastic  element,  which  enables  the 
railways  to  meet  momentary  wants.  The  standing  committee 
of  the  council  is  an  important  body.  It  meets  regularly  some 
time  before  the  full  council  holds  its  sessions,  and  its  proceed- 
ings form  the  basis  of  -the  deliberations  in  the  council.  The 
committee  receives  petitions,  memorials,  and  other  communica- 
tions. The  bearers  of  these  are  invited  to  appear  before  the 
committee  and  to  advocate  their  cause.  Questions  are  asked 
and  answered  on  both  sides,  and  after  all  the  questions  have 
been  presented  the  committee  votes  upon  the  petition  or  request, 
usually  in  the  form  of  a  resolution  adopted  by  majority  vote, 
recommending  the  council  to  accept  or  reject  the  demands  made 
in  the  petitions.  The  action  of  the  committee  is  reported  on 
each  question  by  a  member  designated  for  that  purpose  to  the 
full  council  at  its  next  session.  Wliile  the  decision  of  the  com- 
mittee is  usually  accepted  by  the  council,  it  in  no  way  binds 


EAILROADS  IN  GERMANY  811 

that  body.  Before  the  council  meets,  each  member  has  an 
opportunity  to  examine  the  arguments  presented  before  the 
committee,  and  the  facts  upon  which  its  decisions  are  based.  If 
the  advocates  of  the  petitions  before  the  council  present  new 
evidence,  or  if  the  recommendations  of  the  committee  are  shown 
to  be  unsound,  the  council  simply  reverses  the  decision  of  the 
committee.    Of  the  nature  of  these  petitions  I  shall  speak  later. 

These  advisory  councils  have  spread  into  Bavaria,  Saxony, 
Wiirttemberg,  Hesse,  Oldenburg,  iNIecklenburg-Schwerin,  Aus- 
tria, Italy,  Russia,  Denmark,  Roumania,  and,  in  a  much  modi- 
fied form,  into  France.  An  examination  of  the  councils  in  these 
countries  shows  the  same  principle  underlying  them  all  —  the 
representation  of  all  the  different  economic  interests  in  the  con- 
duct of  the  railways.  In  composition  and  organization  they 
are  much  alike.  They  owe  their  existence,  however,  except  in 
Japan  and  Switzerland,  not  to  law,  but  simply  to  administrative 
orders. 

There  are  still  other  bodies  which,  although  not  created  by 
law  and  not  confined  in  their  activity  to  Prussia,  have  long 
exerted  a  powerful  influence  throughout  the  Empire.  Foremost 
among  these  stands  the  Generalkonferenz  (general  conference). 
Under  its  guidance  the  modern  German  system  of  rates,  callecl 
Reformtarif,  has  been  systematically  developed.  The  general 
conference  meets  annually,  and  discusses  matters  relating  to 
tariffs,  fees,  operating  regulations,  etc.  Thus,  at  a  recent  meet- 
ing the  conference  disposed  of  no  less  than  53  different  items, 
relating  mostly  to  the  classification  of  goods  and  the  adjustment 
of  rates,  all  of  which,  as  in  case  of  the  circuit  councils,  had  been 
previously  considered  in  subordinate  bodies  whose  deliberations 
lie  at  the  basis  of  the  proceedings  in  the  general  conference. 
It  is  composed  of  members  representing  all  the  German  rail- 
ways, and  votes  are  distributed  according  to  the  number  of 
miles  of  road  the  members  each  represent,  and  the  total  num- 
ber of  votes,  increasing,  of  course,  with  the  growth  of  the  Ger- 
man system.  At  the  meeting  referred  to,  the  total  number  of 
votes  was  322,  of  which  51  were  not  represented.  Of  these  51, 
28  belonged   to  roads  having  1,  10  to  those  having   2,  and  1 


Sl:2  KAILW.W     I'KOl'.LKMS 

to  those  having  8  votes.  The  Prussian  State  railways  had 
11^9  votes,  the  Bavarian  State  railways  'iS,  those  of  Saxony  16, 
the  State  nxuls  of  Alsace-Lorraine  11,  the  State  roads  of  Baden 
10,  and  so  on  down,  the  remainder  representing  the  smaller 
State  and  private  raihva3'S.  These  lignres  show  the  predomi- 
nating inliuenee  of  Prussia  in  the  conference. 

Bodies  stdK)rdinate  to  the  general  eonfeivnce  have  already  been 
alluded  to.  These  are  the  Tarif-Kommission  and  the  Ausschuss 
der  Verkehrsinteressenten  (tariff  commission  and  committee  of 
those  interested  in  transportation).  The  tariff  commission  is  a 
standing  committee  wdiose  members  represent  Prussian  State 
roads,  2  Swiss  roads,  and  1  of  the  railways  of  Mecklenburg. 
It  meets  3  times  a  year,  and  occupies  itself  with  petitions  and 
other  communications  from  shippers.  The  committee  of  ship- 
pers (Verkehrsinteressenten)  is  composed  of  members  represent- 
ing agriculture,  trade,  and  industry ;  and  some  of  the  matters 
brought  before  it  are  previously  discussed  by  a  subcommittee. 
Both  of  these  bodies  occupy  themselves  almost  exclusively  with 
freight  rates  and  matters  immediately  connected  with  them. 
Out  of  23  items  brought  before  them  during  a  2  days'  session 
in  1893,  22  were  deliberated  upon  in  joint  session,  although  each 
body  voted  separately.  The  discussions  in  these  sessions  are 
so  thorough  that  the  recommendations  made  are,  in  the  great 
majority  of  cases,  approved  by  the  general  conference.  Those 
conclusions  of  the  commission  which  are  adopted  in  the  form  of 
a  declaratory  statement  become  binding  upon  members  unless 
protests  are  made.  Subjects  discussed  in  the  conference  and  com- 
mission may,  and  frequently  are,  brought  before  the  councils. 

Among  the  various  railway  traffic  and  rate  unions  which 
might  be  mentioned  none  have  exerted  an  influence  on  rates  at 
all  comparable  to  that  which  has  been  exercised  by  the  Society 
of  German  Railway  Administrations.  Founded  as  a  Prussian 
society  in  1846,  it  became  in  quick  succession  a  national 
and  an  international  organization,  embracing  the  railways  of 
Germany,  Austria,  Hungary,  Ron  mania,  lAixemburg,  Holland, 
Belgium,  Bosnia,  and  Russian  Poland.  Both  State  and  private 
railways  are  eligible  to  membership.     A  series  of  8  standing 


RAILEOADS  IN  GERMANY  813 

committees  covers  the  special  branches  of  the  service,  and  if 
extraordinary  matters  arise  they  are  referred  to  special  com- 
mittees. Questions  upon  which  the  society  is  to  act  must  be 
published  at  least  3  months  preceding  the  meeting.  The  pro- 
ceedings have  long  been  published  in  an  official  paper,  and, 
through  custom,  exert  a  powerful  influence.  The  attainment 
of  uniformity  in  construction  and  other  matters  has  been  one 
of  its  great  aims.  In  Europe  the  necessity  for  international 
uniformity  is  much  greater  than  with  us,  and  in  the  domain  of 
freight  traffic  this  has  been  well  attained  by  means  of  an  in- 
ternational treaty,  signed  at  Berne  on  October  14,  1890,  by 
diplomatic  agents  from  Belgium,  France,  Germany,  Italy,  Lux- 
emburg, Holland,  Austria,  Hungary,  Russia,  and  Switzerland. 
It  is  officially  known  as  the  "  Convention  Internationale  sur 
le  transport  de  marchandises  par  chemins  de  fer." 

The  history  of  this  international  agreement  dates  back  to 
1874,  the  same  year  that  INIiilhausen  inaugurated  the  move- 
ment which  led  to  the  institution  of  advisory  councils.  In 
that  year  2  Swiss  citizens,  residents  of  Bale,  dii'ected  to  the 
governments  of  the  surrounding  States,  inquiries  concerning 
their  willingness  to  enter  into  an  international  freight  treaty. 
Drafts  of  such  a  treaty  were  worked  out  in  both  Germany  and 
Switzerland  and  discussed  in  a  congress  at  Berne  in  1878. 
This  congress  submitted  the  draft  of  a  treaty  to  the  different 
governments  for  examination.  Many  objections  were  raised  and 
improvements  made.  Further  conferences,  dealing  also  with  ques- 
tions of  technical  uniformity,  were  held  in  1882  and  1886,  and 
on  October  14,  1890,  the  draft  approved  by  the  third  congress 
was  formally  drawn  up  as  a  treaty  and  approved.  The  original 
treaty  has  been  modified  and  supplemented  in  various  ways, 
partly  by  agreements  among  all  these  countries  and  partly  by 
agreements  among  several  of  them.  Every  3  years,  or  sooner, 
if  one  fourth  of  the  treaty-making  States  demand  it,  a  general 
congress  must  be  called  together  to  consider  improvements  in 
the  agreement. 

As  its  name  indicates,  the  Bernese  treaty  applies  only  to  inter- 
national freight  traffic.    Excepting  articles  the  transportation 


S14  KA11.\\A^•    rWol'-LKMS 

of  which  is  reguhirly  nioiiopolizccl  hy  the  pDsl  oIUcl's  of  ihu 
(.•onirai'tiiig  States,  tlie  licaty  governs  Jill  shipments  of  goods 
fiHiin  or  tlnough  (Uie  of  ihi'  Slates  to  another.  It  provides  for 
uniform  through  bills  of  lading,  prescribes  routes  for  inter- 
national trallic,  fixes  liability  in  cases  of  delay  and  loss,  prohibits 
special  contracts,  rebates,  and  reductions,  except  when  publicly 
announced  and  available  to  all,  and  prescribes  certain  custom- 
house regulations.  Not  the  least  important  feature  of  the  treaty 
is  the  creation  of  a  central  bureau,  organized  and  supervised 
by  the  Swiss  Bundesrath,  witli  its  seat  in  Berne.  The  duties 
of  the  bureau  are  five  : 

1.  To  receive  communications  from  any  of  the  contracting 
States,  and  to  transmit  them  to  the  rest  of  them. 

2.  To  compile  and  publish  information  of  importance  for 
international  traffic,  for  which  purpose  it  may  issue  a  journal. 

3.  To  act  as  a  board  of  arbitration  on  the  application  of  the 
countries  concerned. 

4.  To  perform  the  business  preliminaries  connected  with  pro- 
posed-changes  in  the  agreement,  and,  under  certain  circum- 
stances, to  suggest  the  meeting  of  a  new  conference. 

5.  To  facilitate  transactions  among  the  railways,  especially 
to  look  after  those  which  have  been  derelict  in  financial  matters. 
After  notice  has  been  given  by  the  bureau,  the  State-  to  which 
the  railway  belongs  or  by  whose  citizens  it  is  owned  can  either 
become  responsible  for  the  debts  of  the  road  or  permit  the 
exclusion  of  the  road  from  international  traffic. 

The  expenses  of  the  bureau  are  met  bj'  contributions  of  the 
contracting  States  in  proportion  to  mileage. 

The  original  agreement  provided  that  any  of  the  States  might 
withdraw  at  the  end  of  3  years,  on  giving  1  year's  notice.  No 
such  notice  has  ever  been  given.  Any  violation  of  the  treaty 
can  be  punished  in  the  courts,  and  a  judgment  having  been 
rendered  in  one  country  the  courts  of  the  others  are  bound  to 
assist  in  its  execution,  unless  the  decision  conflicts  with  their 
own  laws.  But  so  far  as  tlie  question  of  fact  is  concerned  there 
is  no  appeal,  and  a  German  court  is  bound  to  accept  the  find- 
ings of  a  court  in  France.    Germany,  Austria,  Hungary,  Russia, 


RAILROADS  IN  GERMANY  815 

Switzerland,  and,  to  a  less  extent,  France  have  embodied  pro- 
visions of  the  international  code  in  their  internal  code,  thus 
leading  to  unification  beyond  the  limits  of  international  traffic. 
To  what  extent  the  Bernese  treaty  may  influence  other  phases 
of  the  national  and  international  laws  of  the  States  of  central 
Europe  cannot  well  be  foreseen.  That  States  differing  widely 
in  forms  of  government,  geographical  position,  and  commer- 
cial interests  have  voluntarily  made  themselves  amenable  to 
a  common  code  of  law  under  these  circumstances,  again  im- 
presses one  with  the  great  power  and  many-sided  influence  of 
railways  and  the  healthy  development  of  closer  international 
relations.  The  code  is  binding  for  a  domain  embracing  nearly 
3,000,000  square  miles  and  260,000,000  people.  It  ranks  in 
importance  with  the  international  postal,  telegraph,  and  copy- 
right unions. 

Proceedings  of  advisor )j  councils.  The  leading  features  of  the 
Prussian  railway  administration  relating  to  rates  have  now  been 
presented.  It  remains  to  illustrate  by  means  of  a  few  side  lights 
from  the  proceedings  how  a  part  of  the  machinery  acts.  To  con- 
vey a  somewhat  detailed  view  of  the  workings  of  the  admin- 
istrative organs  directly  concerned  with  the  operation  of  the 
railways  would  unduly  extend  this  paper ;  besides,  it  would 
be  a  little  technical  and  not  essential  from  the  economic  point 
of  view.  So  we  shall  content  ourselves  with  a  brief  account  of 
some  of  the  deliberations  of  the  advisory  and  other  bodies 
directly  occupied  with  questions  about  rates.  We  shall  save 
time  by  first  obtaining  a  general  idea  of  the  German  system 
of  rates,  for  which  purpose  the  general  plan  of  the  German 
reform  tariff  is  here  given  : 

German  Tariff  Scheme 

1.  Fast  freight  by  the  piece  (express  package  freight). 

2.  Fast  froigiit  by  the  car  load. 

3.  Piece  goods  (k-ss  than  car  loads). 

4.  General  car-load  class  A  1,  in  shipments  of  at  least  5000  kilograms. 

5.  General  car-load  class  B,  in  shipments  of  at  least  10,000  kilograms. 

6.  Special  tariff  A  2,  in  shipments  of  at  least  5000  kilograms.       , 

7.  Special  tariff  I,  II,  III,  in  shipments  of  at  least  10,000  kilograms. 


The  rates  and  what  peilains  to  them  are  ollicially  })iil)lished 
in  voliunos  nut  unlike  our  monthly  magazines.  This  tariff 
SL'hemo  was  tirst  introduced  in  1877,  and  through  the  influence 
mainly  of  the  general  conference  it  has  become  gradually  more 
unitied.  It  is  obvious  that  the  price  of  transportation  of  goods 
becomes  less  as  they  fall  into  a  class  farther  down  the  list.  The 
general  car-load  classes  include  goods  of  higher  value  not 
enumerated  in  any  of  the  special  tariffs,  wdiile  the  special  tariffs 
1,  II,  and  III  embrace  less  valuable  goods  —  their  value  falling 
by  degrees  —  so  that,  generally  speaking  — 

Special  tariff  I  includes  manufactured  goods. 

Special  tariff"  II  includes  intermediate  products. 

Special  tariff  III  includes  raw  materials  and  bulky  goods  of 
small  value,  such  as  certain  waste  products  of  gas  factories, 
tanneries,  paper  factories,  slaughterhouses,  etc. 

Special  tariff  A  2  is  for  goods  belonging  to  special  tariffs  I 
and  II  in  consignments  below  10,000  and  above  5000  kilograms. 
Goods  belonging  to  special  tariff  III,  but  weighing  less  than 
10,000,  though  at  least  5000  kilograms,  are  transported  at  the 
rates  of  special  tariff  II.  Then  there  are  special  rules  and  rates 
for  such  things  as  explosives,  precious  metals,  vehicles,  timber, 
fish,  bees,  meat,  carrier  doves,  etc.  Questions  as  to  classification 
and  the  transference  of  goods  from  one  class  to  another  often 
arise.    Here  is  a  typical  case : 

The  Chamljer  of  Commerce  of  Lennep,  a  Rhenish  city,  peti- 
tioiLed  the  general  conference  to  transfer  manufactured  horse- 
shoes —  "  raw  hoof  irons,"  the  Germans  say,  but  which  will  here 
be  designated  simpl}^  as  "  horseshoes  "  —  from  special  tariff  I  to 
special  tariff  II.  A  prominent  business  firm  brought  the  question 
before  one  of  the  railway  directories,  and  from  there  it  was 
carried  before  the  minister  of  public  works.  The  minister  con- 
sulted the  permanent  tariff  commission  and  the  committee  of 
shippers,  and  finally  the  question  was  brought  before  the  advisory 
councils. 

The  petitioners  asserted  that  the  manufacture  of  horseshoes 
was  a  new  industry  which,  after  many  costly  experiments,  had 
only  recently  gained  a  firm  foothold ;  that  the  trade  had  been 


RAILROADS   IN   GERMANY  817 

gradually  growing,  especially  with  the  East,  and  that  consign- 
ments had  been  sent  to  Russia,  Italy,  Austria,  and  other  coun- 
tries. In  domestic  trade  the  use  of  these  horseshoes  had  been 
promoted  by  military  authorities  and  street-car  companies,  be- 
cause it  lessened  cost  and  relieved  the  blacksmith  of  much 
purely  mechanical  work.  It  enabled  him  to  do  better  work 
more  cheaply  and  with  greater  uniformity.  The  charge  that  it 
hindered  the  education  of  skillful  blacksmiths  was  untrue. 

Extensive  statistical  tables  were  introduced  to  show  that  the 
life  of  the  industry  depended  upon  the  desired  change  in  rates. 
Horseshoes  were  subjected  to  the  same  rates  as  fine  iron  and 
steel  goods,  while  they  properly  belonged  to  intermediate  prod- 
ucts in  special  tariff  II.  Many  of  the  factories  were  unfavor- 
ably located,  and  it  was  one  of  the  highest  duties  of  the  State 
to  promote  industrial  activity  in  regions  which  lie  away  from 
the  great  channels  of  trade,  if  it  could  be  done  without  too 
great  a  sacrifice  on  part  of  the  public.  The  desired  concessions 
on  part  of  the  railroads  would  do  this.  It  was  unjust  for  the 
representatives  of  the  Saxon  State  railways  to  assert,  as  they 
had  done  in  the  tariff  commission,  that  the  change  in  the  classi- 
fication of  horseshoes  would  benefit  the  Rhenish  industry  only. 
Particularistic  designs  should  not  be  suspected  in  a  movement 
which  was  deeply  rooted  in  economic  necessities.  The  repre- 
sentatives of  the  Bavarian  railways  had  considered  fiscal  reasons 
only,  but  these  alone  could  not  be  decisive.  It  would  not  be 
businesslike  for  the  State,  in  order  to  gain  a  temporary  advan- 
tage, to  sacrifice  the  very  source  of  this  gain.  The  railways 
would  fare  worse  with  high  rates  and  a  stagnant  industry  than 
with  lower  rates  and  a  prosperous  industry,  and  it  was  safe  to 
assert  that  the  desired  change  would,  through  an  increased  out- 
put, ultimately  yield  a  greater  income  to  the  railways.  The  es- 
tablished system  of  rates  would  not  be  prejudiced ;  besides,  when 
the  question  of  system  is  balanced  against  that  of  the  welfare  of 
an  industry  the  latter  should  prevail.  The  nationalization  of  rail- 
ways was  undertaken  not  for  fiscal,  but  for  economic  reasons. 

These  were  the  main  features  of  the  petition.  The  petition, 
together    with   the    records  of   previous    deliberations    on   the 


SIS  i^\TT-w.\y  riv'or.iJiMs 

question,  was  brought  before  the  standing  committee  of  one  of 
the  circuit  councils,  by  which  the  arguments  were  reviewed 
and  new  evidence  introduced.  Can  tliese  horseshoes  be  chissed 
with  rod  iron?  Are  they  an  intermediate  product?  Could  not 
plowshares  and  other  articles  demand  a  like  change?  What 
is  the  relation  of  the  proposed  change  to  the  competition  of 
Swedish  iron  ?  Is  it  true  that  the  manufacture  of  horseshoes 
injures  the  craft  of  blacksmiths?  Will  it  lead  to  a  wider  use 
of  horseshoes  and  conse(picntly  to  an  improvement  of  agricul- 
ture? Such  were  the  questions  which  the  conunittee  considered, 
and  in  response  to  which  evidence  of  individuals  and  of  societies 
was  presented  and  subjected  to  the  most  rigid  examination  by 
specialists  of  various  classes.  F'rom  the  committee  the  question 
went,  as  all  questions  considered  by  the  committee  do,  before 
the  full  council,  by  which  the  i"ej)ort  of  the  committee  was 
reviewed  and  the  horseshoe  problem  linally  disposed  of. 

In  a  similar  manner  both  the  committee  and  council  deliber- 
ated upon  a  petition  of  the  Agricultural  Society  of  Rhenish 
Prussia  to  place  street  sweepings  in  the  special  class  with  fer- 
tilizers and  to  reduce  rates  for  shorter  distances,  because  sweep- 
ings are  used  only  within  from  10  to  20  kilometers  of  the  cities. 
The  sweepings,  it  was  asserted,  had  considerable  value  for  agri- 
culture, but  that  the  difificulty  of  disposing  of  them  had  led  some 
cities,  notabl}^  Hamburg,  to  destroy  them,  thus  depriving  agri- 
culture of  a  valuable  agent.  The  composition  and  value  of 
sweepings  were  examined  and  compared  with  other  fertilizers 
now  available,  and  the  probable  effect  on  the  use  of  these  con- 
sidered. At  the  same  session  of  the  committee  the  change  in 
time-tables  for  the  summer  period  was  regularly  considered. 
Twenty-eight  items  were  presented  by  the  14  different  mem- 
bers, involving  the  time  and  frequency  of  passenger  trains.  All 
propositions  which  received  a  majority  vote  in  the  committee 
were  brought,  of  course,  before  the  full  council. 

In  speaking  of  the  composition  of  circuit  councils  reference 
was  made  to  the  question  of  rates  on  coal  and  coke.  One  of 
the  railway  directories  brought  before  the  standing  committee  of 
the  circuit  council  a  question  first  submitted  in  a  petition  of  the 


RAILROADS  IN  GERMANY  819 

chamber  of  commerce  of  Bielefeld  and  subsequently  indorsed, 
either  in  part  or  entire,  by  other  organizations.  The  petition 
sought  a  temporary  suspension  of  rates  applicable  to  coke  and 
coal  sent  from  the  Rhenish  mining  districts  to  the  German  sea- 
shore and  to  foreign  countries.  The  suspension  was  to  remain 
in  effect  until  the  prices  in  the  coal  market  should  return  to  a 
normal  level. 

In  the  consideration  of  this  question  the  railway  directory 
asked  the  committee  and  council  to  deliver  an  opinion  on  each 
of  the  following  points:  (1)  Is  the  level  of  prices  of  coke  and 
coal  in  the  Rhenish- Westphalian  district  an  abnormal  one  ?  (2) 
How  must  the  prices  of  coke  and  coal  be  constituted  in  order 
that  their  level  may  be  characterized  as  normal?  (3)  Should  a 
permanent  or  temporary  suspension  of  existing  freight  rates  on 
coke  and  coal  be  recommended  in  order  to  effect  a  reduction  of 
prices  within  the  country?  (4)  What  markets  and  what  rates 
come  into  consideration  in  case  of  the  temporary  or  permanent 
suspension  of  the  rates  in  question  ?  Shall  the  rates  to  foreign 
countries  or  also  the  rates  to  the  seashore  be  changed?  (5)  What 
will  be  the  probable  effect  of  the  proposed  suspension  of  rates 
with  reference  to  the  sale  and  the  price  of  coal  and  coke  within 
the  country? 

In  both  the  committee  and  in  the  council  this  problem  was 
thoroughly  dissected.  Naturally  there  were  differences.  Abnor- 
mal prices  were  thought  to  be  prices  which  include  an  element 
of  profit  out  of  proportion  to  the  other  constituents  of  price. 
On  the  one  hand,  a  profit  of  40  per  cent  was  shown  to  exist, 
which,  however,  the  experts  present  at  once  proved  to  be  con- 
fined to  two  specially  favored  mines.  In  computations  to  ascer- 
tain the  average  selling  price  of  coal  there  was  a  difference  of 
several  marks,  which  called  forth  the  most  rigid  examination  of 
the  statistics  and  other  evidence  upon  which  the  figures  were 
based.  The  railway  authni'ities  showed  that  in  5  years  the  out- 
lay for  coal  for  locomotives  had  risen  from  4^-  to  7  per  cent  of 
their  .total  expenses,  while  coal  was  still  rising,  and  the  coal 
men  showed  that  their  cost  of  production  had  risen  because  of 
advances  in  wages  and  expenses  connected  with  insurance.    It 


S20  KAll.\\A^■  i'i;(ti'.ij:.Ms 

was  said  that  the  {iivseut  low  rates  for  the  transportation  of  coal 
had  been  introdueed  at  a  time  when  the  coal  industry  had  lain 
prostrate,  and  that  now  all  other  industries  were  suffering  from 
the  high  price  of  coal,  and  that  this  advance  in  freight  rates  on 
coal  and  coke  would  check  exportation  and  force  down  prices 
at  home.  A  decrease  in  exportation  was  deplored  by  represent- 
atives of  the  German  marine.  In  conclusion,  among  both  the 
advocates  and  the  opponents  of  the  change,  the  opinion  was 
expressed  that  there  was  reason  for  rejoicing  in  the  thorough 
airing  which  this  question  had  received ;  that  it  would  lead  to 
a  better  understanding  of  actual  conditions,  and  that  the  coal 
industry  would  hereafter  be  more  inclined  to  give  due  consider- 
ation to  the  condition  of  other  (ierman  industries. 

We  come  now  to  the  consideration  of  a  question  which,  per- 
haps even  more  forcibly  than  what  has  just  been  related,  illus- 
trates the  comprehensiveness  and  fair-mindedness  with  which 
the  railway  authorities  investigate  the  problems  which  affect 
wide  economic  interests.  It  is  a  petition  submitted  by  the  min- 
ister of  public  wo]-ks  to  the  national  council  for  an  expression 
of  opinion.  The  printed  evidence  sent  to  the  council  alone 
covers  about  500  folio  pages.  The  problem  submitted  by  the 
minister  to  the  national  council  was  this :  Giving  due  consider- 
ation to  the  financial  condition  and  the  financial  interests  of  the 
State,  is  it  conducive  to  the  general  economic  interests  of  the 
country  (1)  to  introduce  special  reduced  rates  for  all  kinds  of 
manures  and  fertilizers,  irrespective  of  their  nature,  and,  if  so, 
what  rates?  (2)  to  introduce  special  reductions,  and  to  what  ex- 
tent, for  the  transportation  of  (a)  potassium  salts  —  without  dis- 
crimination or  only  "  raw  salts  "  —  and  phosphate  ;  and  (b)  lime, 
in  pieces  or  powdered,  used  for  fertilization  ? 

This  was  submitted  in  October,  1893.  During  March  of  that 
year  the  Ilerrenhaus  had  passed  a  resolution  requesting  the 
Government  to  introduce  reduced  special  rates  for  fertilizers, 
a  number  of  which  were  specified  in  the  resolution.  As  stated 
in  support  of  the  resolution,  the  necessity  for  it  lay  in  a  cheap- 
ening of  elementary  utilities  in  order  to  maintain  and  promote 
agriculture  and  to  increase  the  receipts  of  the  railway  from  the 


EAILEOADS   IX   GERMANY  821 

traffic  with  the  interior.  The  same  resolution  had  previously 
been  adopted  by  the  budget  commission  of  the  Landtag. 

In  response  to  this  resolution  the  minister  of  public  works 
sought  information  from  the  minister  of  agriculture,  domains, 
and  forests,  and  all  the  different  agricultural  experiment  sta- 
tions as  to  the  occurrence  and  production  of  natural  and  arti- 
ficial manures  in  different  parts  of  the  country,  their  price  and 
value  in  use,  and  the  nature  of  their  application.  Various  com- 
missions reported  on  the  prices  at  which  different  fertilizers 
could  be  profitably  used  on  different  soils.  The  agricultural 
authorities  showed  where  and  to  what  extent  these  soils  existed, 
and  elaborate  statistics  of  the  railways  and  manufacturers  told 
how  much  had  actually  been  consumed.  In  this  lay  the  vital 
issue  —  the  capacity  of  the  land  to  absorb  profitably  artificial 
manures,  and  the  adaptability  of  the  farmer  to  secure  them. 
The  national  council  said  that  a  simple  expression  of  its  appre- 
ciation of  the  great  economic  significance  of  the  use  of  both 
natural  and  artificial  manures  was  not  sufficient,  but  that  an 
exact  and  conscientious  examination  of  the  effect  of  existing 
rates  on  the  widest  and  most  effective  use  of  these  was  neces- 
sary. The  deliberations  of  the  committee  of  shippers,  the  tariff 
commission,  the  general  conference,  and  the  evidence  submitted 
through  the  minister  of  public  works  were  all  thoroughly  sifted 
by  the  standing  committee  of  the  national  council  before  the 
case  went  before  the  full  council  for  its  final  verdict. 

Marbles,  slates,  and  pencils  even  have  been  the  object  of  the 
most  serious  deliberations  of  bodies  so  large  and  so  dignified  as 
the  general  conference  and  the  national  council.  A  memorial  was 
addressed  to  one  of  the  railway  directories  by  the  marliles,  slate, 
and  pencil  industry  of  Thuringia,  praying  for  a  detariffization 
of  these  articles.  The  memorial  gives  a  detailed  account  of  the 
manufacture  of  marbles,  slates,  and  pencils  in  Thuringia,  and 
points  out  the  places  where  it  meets  competition.  It  gives  the 
cost  of  production,  output,  markets,  prices,  and  the  rates  of 
transportation.  The  conditions  of  the  laboring  population  are 
described,  and  the  probable  effect  of  a  change  in  rates  on  their 
welfare  is  analyzed.    (One  may  be  pardoned  for  turning  aside 


822  !^\lI.\v.\^    imiohlkms 

to  state  that  tlu'  hiluners  tluii'  ong-aged  in  the  manufacture  of 
shites,  althiiugh  i'\[)oseil  to  tlii'  danger  of  completely  undermin- 
ing their  health,  receive  often  no  more  than  12  cents  lor  a  day's 
work  of  18  hours.)  The  railway  directory  to  which  the  memo- 
rial was  sent  aihlressed  a  letter  of  inquiry  to  the  manufacturer 
of  slates  and  pencils  in  Westphalia,  whose  business  would  be 
affected  by  the  competition  of  'riiuiingia,  calling  for  information 
on  various  points  relating  to  this  industiy.  This  reply,  together 
with  the  memorial  and  supplementary  material,  was  submitted, 
through  the  minister  of  public  works,  to  the  national  counciL 

One  cannot  read  these  documents  without  being  impressed 
with  the  sincere  desire  of  the  railway  authorities  to  do  justice 
to  all  competitors  and  at  the  same  time  to  make  such  changes 
as  will  better  the  conditions  of  people  like  these  laborers  in 
Thuringia.  Whether  or  not  the  benefits  arising  from  a  change 
in  rates  would  really  accrue  to  these  people  was  most  carefully 
considered.  The  material  submitted  for  consideration  in  decid- 
ing this  question,  as  in  case  of  the  preceding  questions,  furnished 
evidence  on  every  point  which  was  raised.  The  moderation  with 
which  the  petitions  are  drafted,  the  high  plane  upon  which  the 
debates  are  carried  on,  the  thorough  conscientiousness  and 
judicial-mindedness  with  which  the  arguments  are  balanced  in 
reaching  a  decision,  all  manifest  a  tone  not  unlike  that  of  the 
decisions  of  our  best  courts  of  justice. 

Summary  and  remarks.  Prussia  began  with  a  general  law. 
In  this  respect  her  history  is  the  direct  opposite  of  that  of  our 
States.  Treating  this  general  law  as  a  nucleus,  legislation,  royal 
and  ministerial  orders  and  rescripts,  and  custom  have  developed 
two  distinct  groups  of  railway  administrative  organs,  each  repre- 
senting distinct  sets  of  interests,  yet  both  working  cooperatively. 
On  the  one  hand  we  have  a  group  of  organs  which  represents 
railway  interests  in  particular  and  which  takes  the  railway  point 
of  view.  The  minister  of  public  works,  the  railway  directories, 
the  general  conference  and  tariff  commission,  and  the  Society  of 
German  Railways  fall  into  this  group,  although  the  two  latter 
stand  in  a  measure  on  the  border  line,  and  none  of  them  are 
confined  exclusively  to  railway  interests.    Legal  responsibility  is 


KAILEOADS   IN  GERMANY  823 

fixed  in  the  first  two.  On  the  other  hand,  we  have  the  national 
and  circuit  councils  with  their  standing  committees  and  the  com- 
mittee of  shippers.  These  primarily  take  the  social  and  economic 
point  of  view.  They  are  not  legally  responsible  for  the  conduct 
of  the  railways,  but  act  as  advisory  bodies.  They  represent  aU 
the  different  interests  of  the  nation,  and  through  them  every 
citizen  has  not  only  an  opportunity  but  a  right  to  make  his 
wants  known. 

The  marble  and  slate  industry  of  Thliringen  is  relatively  in- 
significant, yet  of  vital  importance  to  the  inhabitants  of  that 
section  of  the  country.  We  have  seen  how  complete  an  exami- 
nation the  petition  of  these  people  received  at  the  hands  of  the 
highest  authorities  of  the  land.  A  fair  and  prompt  hearing  can 
be  denied  to  no  man,  rich  or  poor.  The  railways  are  made  real 
servants.  All  the  administrative,  legal,  and  advisory  bodies  are 
organically  connected  with  one  another  and  with  the  parliament. 
The  lines  may  be  drawn  taut  from  above  as  well  as  from  below. 
The  elaborate  system  of  local  offices  makes  the  system  demo- 
cratic, and  the  cabinet  office  and  the  directories  give  it  the  neces- 
sary centraHzation.  The  system  presents  that  unity  which  a  great 
business  requires,  on  the  one  hand  ;  and,  on  the  other,  that  rami- 
fication and  elasticity  which  the  diverse  and  manifold  interests 
of  a  great  nation  need  for  their  growth  and  expansion. 

In  the  formation  of  the  councils  the  elective  and  the  a[)point- 
ive  elements  are  so  well  proportioned  that  it  is  impossible  to 
"  pack  "  any  one  of  them.  In  this  respect  each  body  is  a  check 
on  the  other.  It  is  easy  to  reproach  the  system  with  "■  bureau- 
cracy," but  to  give  adequate  support  to  such  a  stigma  would 
be  an  impossible  task.  We  need  only  recall  the  analysis  of  the 
membersliip  of  one  of  the  councils.  Farmers,  dairymen,  fisher- 
men, foresters,  traders,  miners,  manufacturers  —  the  long  array 
of  human  professions  have  here  their  representatives.  One 
representative  may  shape  his  views  according  to  some  particular 
philosophy  of  the  State.  Another  will  at  once  restore  the  balance 
by  presenting  the  opposite.  One  member  may  make  extreme 
statments  about  some  branch  of  trade  or  industry.    Another  will 


S'J4  K,\ii,w.\\"  ri;(M'.i,KMs 

furnish  exact  infoniiation  for  its  refutation.  I  doubt  whetlier  we 
can  tiiid  anywhcru  in  the  workl  deliberative  or  adniiuistrative 
bodies  in  whicli  the  tone  and  the  many-sidedness  of  the  proceed- 
ings, the  anmuiit  and  variety  of  special  knowledge  displayed, 
and  the  logic  of  the  debates  present  more  points  of  excellence 
than  in  these  councils  and  other  bodies. 

If  from  the  point  of  view  of  the  railways  nothing  should  come 
of  these  proceedings  —  a  most  violent  assumption  —  the  informa- 
tion brought  together  would  alone  make  them  invaluable.  No 
investigating  committee  of  Congress  or  legislature  ever  had  a 
better  array  of  talent  in  every  field  at  its  disposal  and  under  its 
control  than  is  found  in  one  of  these  councils  or  commissions. 

It  is  not  my  purpose  here  to  present  new  schemes,  or  to  sug- 
gest ways  and  means  by  which  existing  institutions  of  our  own 
country  might  be  moditied  to  perform  similar  functions.  But 
let  me  ask  whether,  if  our  coal  and  iron  industry,  or  fruit  and 
cattle  raising,  or  any  other  industry,  were  to  receive  an  exami- 
nation like  that  given  to  the  Hhenish  coal  and  coke  industry, 
many  things  might  not  be  different  from  what  they  now  are  ? 
Imagine  a  well-organized  assembly  whose  members  could  speak 
for  the  railways,  for  wheat  and  cattle,  for  fruit  and  steel,  for 
forests  and  for  mines,  and  is  it  not  probable  that  the  effects  an- 
ticipated in  the  circular  letter  of  1875  would  make  themselves 
felt  also  in  the  United  States  ?  Both  our  railways  and  the  public 
have  repeatedly  gone  to  extremes  because  neither  understood 
the  other.  A  system  like  the  Prussian  reveals  the  railways  to 
the  public  and  the  public  to  the  railways.  It  tends  to  remove 
blind  prejudice  and  violent  measures  on  both  sides.  By  reflect- 
ing accurately  the  existing  conditions,  these  conferences  lead  to 
tolerance,  forbearance,  and  mutual  concessions.  The  conclusions 
reached  often  have  as  salutary  an  effect  on  industrial  situations 
as  suspended  judgments  of  our  courts  on  defendants.  It  would 
be  difficult  to  find  in  Prussia  to-day,  among  the  representatives 
of  any  class  or  interest,  objections  to  the  entire  railway  system 
which  are  not  relatively  insignificant.  Both  the  public  and  the 
railwaj^s  have  gained  more  and  more  as  the  system  has  developed. 


RAILROADS  IX  GERMANY  825 

It  will  doubtless  have  been  noticed  that  in  the  discussion  of 
the  council  proceedings  the  decisions  and  their  effect  were  not 
stated.  It  was  my  purpose  simply  to  show  the  nature  of  the 
councils,  and  either  a  negative  or  an  affirmative  vote  would 
throw  no  additional  light  on  the  problem.  Without  a  full  pres- 
entation of  local  details  it  could  mean  little  to  state  that  the 
council  voted  to  place  sweepings  into  the  special  tariff  with 
fertilizers. 

Balthasar  H.  Meyer 

Madison,  Wisconsin 


/ 


INDEX 


Act   to   Regulate    Commerce.    See 
Interstate  Commerce  Act 

Alabama  Midland  Case,  378  et  seq. 
Supreme  Court  Decision,  303,  378 
Sec  also  Long  and  Short  Haul 

Ari'ORTIONMEXT  OF  EXPENSES,   706 
ArrORTIONMENT    OF    VALUATIONS,    703 

Basing  Point  System.   See  Southern 

Blanket  Rates,  354,  433,  449,  401 
BoGUE  Differentials 

On  Lumber,  237  ;  Considered  Radi- 
cally Unsound,  247 
Boston 

Export  Rates  through,  515 
BuKNHAM,  Hanna,  Munger  Co.  Case, 
337  et  seq. 

Canadian  Competition,  349 
Car-Load  Rates,  4.33,  440,  452,  458 
Charleston 

Rates  on  Fertilizer,  318 
Chattanooga  Case,  266 
Chicago 

Early  Conditions  in,  76 
Chicago,     Burlington     &     Q[;incy 

Railroad.    See  Chapter  II 
Chicago  Freight  Bureau  Case,  200 
Chk  ago,    Milwaukee    &    St.    Paul 

Kailroai),  231 
Chicago  Rates  AVest,  344 
Cincinnati   Freight   Bureau  Case, 
153  et  seq. 

Reopened  in  1910,  198  et  seq. 
Cincinnati  Southern  Raii^wav,  202 
Circuitous  Carriage,  307,  330 
Classification,  502,  522  et  seq. 

See  also  ('ar-Load  l^ates  and  Com- 
modity Rates 
CoLOKADr)  Hates,  580 
Commerce  Court  Decision,  198ei.ser/. 
Commodity  Rates,  453 

To  the  Soutli,  270;    in  Transconti- 
nental 'J'rattic,  470 
Common  Points,  323 


Competition 

Gulf  and  Atlantic  Ports,  488  ;  under 
Union  Pacilic  Merger,  Chapter 
XXII 

See  also  Water  Rates 
Confiscatory  Rates,  682 
Constitution 

And  Rates,  716-741 
Construction  Companies,  108  et  seq. 
Constructive  Mileage,  159 
Corn 

Rates  on,  491,  513 
Cost  of  Service 

In  Grain  Rates,  506 

See  also  Rates,  etc. 
Cotton 

Rates  on,  258,  360 
Credit    Mobilier    Company,    108  et 
seq. 

Danville,  Va.,  Case,  402 
Denver 

Rates  to,  451 
Depreciation,  702 
Differentials 

On  Lumber,  237;  in  Connection 
with  Canadian  Pacilic  Rates,  347  ; 
in  Transcontinental  Traffic,  459  ; 
on  Export  Grain,  494  ;  in  England, 
751 
Distance,  329 
Division  of  Territory 

By  Southern  Lines,  168 
Domestic  Rates.    -S't'e  Export  Rates 
Drew,  Daniel,  3 
Dry  Goods  Rates,  340 

Eau    Claire,    Wis.,    LuMiiEU    Case, 
231  et  seq. 

English  Railway  and  Canal  Com- 
mission, 742  et  se<i. 
Constitution  of,  742  ;  Terminal  and 
Through  Rates,  744  ;  Reasonable 
Fa«Mliti('s,  747  ;  I'ndue  Preference, 
749  ;  Preferential  Kates,  758  ;  dm- 
tnii   over  Kates,   765  ;    I'crsonnel 


827 


82S 


i;ai  \.\\ w  I'Kor.iJ'LMS 


ami  Work  of  tlu'  I'oiimiission, 
77'_'  ;  (."omparisoii  with  tht.'  Unitoil 
Siatfs.  7W) 

Eyr.vi.i/iNCi  Hatks,  321 

KiMK  Kaii.uoak,  1  vt  fteq. 

KxroHT  HAtKs,  3(>3,  487  ct  scij. 

History  of.  488 ;  Prothictioii  and 
Export  of  Wiioat  and  Corn,  400  ; 
on  Grain  and  (irain  IM-oduots.  502, 
520;  undi'r  Intt-rstatr  Connnt'ri'u 
Act,  508  ;  and  Import  Kates,  500  ; 
in  England,  751 

Fi:i>Ki!Ai,  Courts,  619 
Feutilizeu 

Rates  on,  314,  359 
Fink,  Albert,  130 
Flolr 

Hates  on,  297,  487  et  seq.,  502 
FoHHKS,  J.  M.    Ste  Cliapter  11 

FOLUTEEN'm   A.MENDMKNT,   507 

And  Hates,  710-741 
France 

Railway  Regnlation  in.  702  ;  Official 
Macliinerv.  703  ;  Clianije  of  Rates, 
795 ;  Tariffs,  797 
Franchise  Valuations,  OK! 
Frauds  in  Construction,  85  et  seq. 
Furs 

Classification  of,  522 

Georgia  Railroad  Commission 

Rates  fixed  by,  310 
Germany 

Ownership,  800  et  saj. ;  Organization, 
801  ;    International    Agreements, 
810  ;  Tariffs.  812  ;  I'rocednre,  810 ; 
Snmmary.  810;  Comparison  with 
United  States,  821 
Gould.  Jay,  33  et  seq. 
Grain  Elevator  Cases,  607 
Grain  Rates,  487  ei  seq. 

And  Grain  Prodncts.  502 
Granger  Cases,  507,  601,  606,  717 
Great  Northern  Railroad 

St.  Cloud  Case,  207 
Great  Northern  Valuation,  710 
Green  Lines,  163  et  seq. 

Harriman  Merger.  See  Chapter 
XXII 

Hepbirn  Act.  See  Interstate  Com- 
merce Act 

Illinois  Central.    See  Chapter  II 
Import  Rates,  509.  751,  763,  785 
See  also  Export  Rates 


iNTiit-RAii.wA Y    Stock    Ownersiih', 

587 
Interstate  Commicrce  Act 

I'ower    to    I'ri'scribe    Rates,    187 ; 
and    Exi)ort    Rates,    508 ;     Com- 
parison witli   I'liiiilish  Conditions, 
78() 
Interstate  Commerce  Commission 
Power  to  Prescribe  Rates,  187 

Jobbing  Rates,  337 
Joint  Rates.    See  Prorating 
Joint  Through  Rates,  339  et  seq. 
Judicial  Review 

Dcn'trine  of,  610;  in  England,  772 

Kansas  Salt  Field,  216 

Lake  Competition.  iS'ee  Water  Rates 

Land  Valuation,  694 

Less  than  Car-Load  Rates.  See  Car- 

JLioad  Rates 
Long  and  Short  Haul 

Salt  Rates,  220  ;  in  the  Chattanooga 
Case,  266  ;  St.  Cloud  Case,  297, 
303  ;  Alabama  Midland,  357.  378; 
Louisville  «&  Nashville  Decision, 
361,370;  Dawson,  Ga.,  387  ;  Dan- 
ville Case,  402  ;  in  England,  755 
See  Alabama  Midland  Case 
Louisville  &  Nashville  Railroad, 

252 
Lumber  Rates 

Eau  Claire,  Wis.,  Case,  231  et  seq. 
Bogue  Differentials,  237 

Market  Competition,  480 

The    Salt    Case,    216 ;    in    Jobbing 
Trade,  337  et  seq. 
Maximum  Freight  Rate  Decision, 
187 
Nebraska  Case,  614 
Michigan 

Early  Conditions  in,  62  et  seq. 
Michigan  Central 

See  Chapter  II 
Mid-Western  and  Pacific  Competi- 
tion, 579 
Minimum  Rates,  242 
Minneapolis 

Rates  from,  503 
Minnesota  Rate  Case,  642-715 
IIistf)ry,  042  ;  Economic  Conditions, 
646;  Ton-Mile  Rates,  650;  Local 
and  Through  Rates,  651  ;  Other 
wState  Cases,  658 ;  Rate-Making 
Power,   660 ;    Early   Regulation, 


INDEX 


829 


666  ;  Federal  Decisions,  672-681  ; 

Physical  Valuation,  683 
Minnesota  Rate  Cases,  719 
Mississippi  River  Rates,  337 
Missouri  River  Rates,  339 
MuNN  V.  Illinois,  717 

Nashville.    See  Chattanooga  Case 
Naval  Stores  Case.    iS'ee  Savannah 
Nebraska  Maximum  Freight  Rate 

Case,  614 
Nebraska  Maximum  Rate  Cases,  726 
Nevada  Railroad  Commission  Case, 

464  et  seq. 
Nevada  Rates,  466 
New  York  Central,  6  et  seq. 
Northern  Pacific  Railroad 

St.  Cloud  Case,  297 
Northern  Pacific  Valuation,  689 

Ohio  River 

Rates  from  Chicago,  160,  422 
Omaha  Pool,  80 
Operating  Efficiency,  593 
Oregon  Rates,  581 
Oriental  Rates,  582 
Ownership 

In  Germany,  800  et  seq. 

Pacific  Coast  Rates.   <See  Transcon- 
tinental Rates 

Panama  Competition,  442 

Personal  Discrimination.    See  Re- 
bates 

Physical  Valuation,  683-715,  734 

Plant  System,  252,  314 

Pools  and  Pooling 

Omaha,  80  ;  Southern  Railway  and 
Steamship  Association,  128  et  seq.; 
Organization,  131  ;  Rate-Making 
Function,  138  ;  Classification,  141 ; 
Allotment  of  Business,  144  ;  Ar- 
bitration, 147,  162  et  seq.,  271 

Postage-Stamp  Rates,  354 

Preferential  Rates,  759 

Prorating,  337  et  seq.,  749 
Division,  480 

Rate  Regulation 
By  States,  see  Chapter  XXV  ;  Rea- 
sonable   Rates,    716-741  ;    under 
Fourteenth  Amendment,  716-741 
Rates 

Power  to  Prescribe,  187  ;  Reason- 
able Rates,  204-215  ;  Prescribing 
Minimum  Rates,  242  ;  Ecjualizing 
between  Competing  Cities,  321  ; 


Transcontinental,  429 ;  Gulf  Ports, 
488  ;  Export  and  Domestic,  487  ; 
Judicial  Determination  of,  597  ; 
in  England,  742 
See  also  Water  Rates,  etc..  Southern 
Rates,  Transcontinental  Rates, 
and  Trunk-Line  Rates 
Reasonable  Rates 

Determioation  of,  597  et  seq.;  under 
Doctrine  of  Judicial  Review,  619 
et  seq.  (see  Chapters  XXV  and 
XXVI);  English  Prescription  of, 
765 
Rebates 

Standard  Oil,  92  etseq.;  Transcon- 
tinental, 362, 457 ;  under  Amended 
Law,  749 
Regulation 

Governmental,  in  England,  742  ;  in 
Fi-ance,  792  ;  in  Germany,  800 
Reproductive  Value,  697 
Right  of  Way  Valuation,  694 
River  Traffic    See  Water  Rates 
Rockefeller,  John  D.,  92  et  seq 
Rocky  Mountain  Rates,  465 

St.  Cloud,  Minn.,  Case,  297,  414 
St.   Louis  Business  Men's  League 

Case,  429 
Salt  Rates.    See  Chapter  VII 
Savannah,  Ga. 

Naval  Stores  Case,  252 ;  Fertilizer 
Case,  314 
Southern  Pacific  System,  570 
Southern  Railroad,  402  et  seq. 

Map  of,  154 
Southern    Railway    &    Steamship 
Association,  128  et  sec/.,  162,  271 
Common  Points,  323,  363 
See  also  Pools  and  Pooling 
Southern  Rates 

Cincinnati  Freight  Bureau  Case,  153; 
Map  of  Railroads,  154  ;  Savannah 
Naval  Stores  Case,  252  ;  Chatta- 
nooga Case,  266  ;  Savannah  Ferti- 
lizer Case,  314 ;  Alabama  Midland, 
357,  378  ;  Dawson,  Ga.,  387  ;  Dan- 
ville, Va.,  Case,  402 
See  Pools  and  Pooling 
Standard  Oil  Rebates,  92  et  seq. 
Sugar  and  Molasses 
Rates  on,  403,  418 

Terminal  Rates,  744,  762 
Terminal  Valuations,  695 
Tobacco 

Rates  on,  406,  411 


830 


KAILWAV    I'KOr.LKMS 


T(»N-Mu.i:  Kkyknie,  08(1 
'I'kansidntinkntai,    K.vti:    Comi-kti- 

TIDN,  r)78 
Tk  VNSII>NT1NKNTAI,   K.VTKS,  4'2i>  vt  XCI/. 

System  of,  4;50,  448  ;  Coiiipliiinl  of 
St.  Louis  JoMrts,  483;  History 
of  SystiMU,  440  ;  ranaiiui  Coiiipe- 
titioii,  442  ;  Cai»t.'  Horn  Coiiipeti- 
tioii,  44;') ;  Pafilic  Coast  Jobbers' 
Position,  455  ;  Dissfntini;  Opinion 
on.  4()1  ;  Nevada  Railroad  Coin- 
mission  Case,  40-4  d  sty.;  Iuipt)rt 
Kate  Case,  487 

Tkoy,   Ala.    See  Alabama   Midland 
Case 

TurxK-LiNE  Hate  System 
Effect  on  Danville  Kates,  410 

Trunk-Line  Kates 
See  Chapter  XIII 

Union  Pacific 

Building  and  Cost,  108  et  scq.;  and 
Northern  Securities  Company, 
658;  Dissolution,  5()7-505;  Growth 
of  System,  570  ;  and  Southern  Pa- 
cific, 571  ;  and  San  Pedro  Line, 
674 ;  and  Northern  Pacific,  575 ; 


and  Atchison,  570  ;  and  Compe- 
tition, 585;  Legal  History,  588; 
Dissolution  Opiiuon,  588  ;  Oi)er- 
ating  ICrticiency,  693;  Later  His- 
tory, 5(»5 

Valuation,  683-715 
Valuation  and  Kates,  7.34 
Value  ok  Seuvue,  520,  707 
Vandekuilt,  C,  5 

AVabasii  Railhoad  Kates  on  Salt, 

222 

Water  Kates  and  Competition 
Coastwise,  158,  175,  390;  on  the 
Cumberland  and  Tennessee  Kiv- 
ers,  275,  289,  333;  via  the  Soo 
Line,  345 ;  on  Alabama  Kiver, 
302,  373  ;  on  the  Chattahoochee 
Kiver,  392  ;  to  Norfolk,  403  ;  in 
Transcontinental  Traffic,  442,  449, 
476  ;  on  Export  Grain,  490,  507, 
517;  in  England,  754 

Western  Classification,  433 

Wheat 
Production    and    Consumption    of, 
489,  512 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 

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This  book  is  DUE  on  tlic  last  date  stamped  below. 

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